By Philippa Billings, Chief Advice Officer, Otivo
How much life insurance you need is one of those questions with a hundred rules of thumb and no single right answer. Multiply your salary by ten, some say. Cover the mortgage, say others. The trouble is that these shortcuts ignore your actual situation. A needs-based approach, adding up what would genuinely need covering, gets far closer. Here's how to work out a figure that fits you.
Quick answer
The amount of life insurance you need depends on what you'd want it to cover, typically outstanding debts, your family's living costs for a period, and future expenses like children's education. A common approach adds these up, then subtracts existing savings and any cover you already hold. As at July 2026, needs-based estimates tend to work better than generic multiples of income.
How do you work out how much life insurance you need?
The most reliable method is needs-based, you build the figure from what would actually need covering rather than from a formula. That means totalling the financial support your household would need if your income disappeared, then reducing it by the resources already available. It takes a little more thought than a rule of thumb, but it produces a figure grounded in your real situation rather than a generic average that may be far too high or too low for you.
What should the cover account for?
A few main things. Outstanding debts, particularly a mortgage, so your household isn't left servicing them. Replacement of your income for a period, to cover ongoing living costs while your family adjusts. Future expenses you'd have contributed to, such as children's education. And final expenses like funeral costs. Adding these together gives the total amount of financial support your cover would ideally provide, which is the top half of the calculation.
What can you subtract?
From that total, you subtract the resources already in place. Existing savings and investments, other assets that could be drawn on, and any life cover you already hold, including the default cover many people have inside their super. What's left after those deductions is the genuine gap, the amount of additional cover that would actually be needed. This step is what stops people over-insuring for protection they effectively already have.
Are rules of thumb like 10 times salary useful?
As a rough starting point, they can give you a ballpark, but they aren't tailored. A multiple of income ignores your specific debts, the number of dependants, your existing cover and your future costs, all of which move the real figure substantially. Two people on the same salary can need very different amounts. Rules of thumb are fine for a first glance, but a needs-based calculation is what gets you to a figure you can actually rely on.
How often should the amount change?
Regularly, because the figure moves with your life. Paying down your mortgage reduces the debt component. Children being born increases future costs, and children becoming independent reduces them. A new relationship, a separation, or a change in income all shift the number too. Because of that, the right amount of cover isn't set once, it's worth revisiting whenever your circumstances change meaningfully.
Frequently asked questions
How much life insurance is enough?
Enough to cover your outstanding debts, your dependants' living costs for a period and future expenses, minus the savings and cover you already have. Because that depends on your situation, a needs-based estimate suits better than a single figure.
Is 10 times my salary a good rule?
It's a rough starting point rather than a reliable answer. A multiple of income ignores your debts, dependants, existing cover and future costs, so a needs-based calculation gives a far more accurate figure for your circumstances.
Does my super insurance count towards how much I need?
Yes. Any default cover you hold inside super should be included when you work out the gap, since it reduces the additional amount you'd need. Checking what you already have prevents over-insuring.
Where to from here
Working out the right amount is really a subtraction, needs minus resources. Otivo, a licensed Australian financial advice platform holding AFSL and Australian Credit Licence No. 485665, offers a personal insurance inside super module that helps you estimate how much cover you might need, based on your dependants, debts, income, age and existing cover. It replaces the guesswork with a figure that fits you.
Sources
- ASIC MoneySmart — how much life insurance you need — moneysmart.gov.au
Disclaimer
The information in this communication is current as at July 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.