Buy Life Insurance · the kinds of life cover
Schedule item 3 of 6
How people estimate how much life cover they need
Moneysmart’s method is a subtraction: add up what your family would need to pay if you died, take away what they would receive, and look at the gap. This page sets out that method and the assumptions behind Moneysmart’s own calculator. It does not give you a number, because the right number depends on a household this page knows nothing about.
General information, not advice. This page explains how things work in general; it doesn’t consider your circumstances and isn’t financial, tax or legal advice. Check the official guidance on ASIC’s Moneysmart and read the product disclosure statement for any policy.
The two columns
Moneysmart frames the question as two lists: what you or your family would need, and what they would receive. The worksheet below copies its items and leaves the amounts blank on purpose.
Column A What would need paying
- The mortgage
- Credit cards and any other debts
- Child care
- School fees
- Ongoing living expenses
Column B What would be there
- Super
- Savings
- The sale of any investments
- Your paid leave balance
- Support from extended family
The gap Column A less column B
Moneysmart’s view is that having a clear figure helps you compare policies and avoid insuring for too little or too much. It also notes that people with nobody depending on them financially may not need life cover at all.
Inside Moneysmart’s calculator
Moneysmart’s life insurance calculator turns the two columns into an estimate. It looks at five areas of need: funeral costs, the mortgage, other debts, children’s education and help with the family’s living costs. It then offsets them with assets you enter: super, savings, investment property, other investments and other assets. The total it shows is the immediate needs (funeral, mortgage and debts) plus the present value of ongoing costs (education and living costs), less those assets.
“Present value” is the less familiar idea. Money for school fees in ten years’ time doesn’t all need to exist today, because a lump sum paid now can be invested while it waits. So the calculator grows future costs by an inflation rate, and discounts them back by an assumed investment return. Its default assumptions, as read on 7 October 2026 (the calculator page was last updated 5 March 2026), are these:
| Setting | Default | What it means |
|---|---|---|
| Funeral costs | $5,000 | Assumed immediate cost of a funeral, which you can change |
| Inflation | 2.5% a year | How fast future costs are assumed to grow |
| Investment return | 3.0% a year | What the insured sum is assumed to earn, after tax and expenses |
| Education | Nil | Added per child; costs assumed payable from age 5 to 18 |
| Living costs | Nil | Up to 10 years of ongoing costs can be added |
| Mortgage, debts, assets | Nil | Nothing is included until you enter it |
The defaults are a starting point, and Moneysmart is plain about their weight: “even small changes to assumptions can make a big difference to the results.” It also acknowledges that the return earned on an insurance payout depends heavily on personal circumstances and economic conditions.
What the estimate leaves out
Moneysmart lists the calculator’s limits itself.
- Only life cover. It does not estimate TPD, trauma, income protection or private health needs.
- No tax. It does not account for any tax that may be payable on insurance benefits.
- No eligibility or price. It does not consider whether you could get the cover or afford it.
- Not advice. It does not consider your wider circumstances and is not a substitute for financial advice.
- It dates. Moneysmart recommends doing a new calculation regularly, as circumstances, markets, tax and rules change.
The same gap, for the other covers
Moneysmart applies the same need-less-resources thinking to the other three covers, with different items in each column.
- TPD. Living expenses, repaying debts, medical and rehabilitation costs, and modifying a home or car; set against private health insurance, any trauma or income protection cover, savings, investments and family support.
- Income protection. Moneysmart suggests doing a budget to see the monthly expenses and income you would need to replace, perhaps including super contributions.
- Trauma. How much income you and your family would need if you couldn’t work for some time, and what other cover, health insurance or support might fill the gap.
Default cover in super is a set amount rather than a calculated one, and Moneysmart notes it might not match your needs; you can usually apply to your fund to increase it, comparing the cost and rules with policies outside super. See life insurance inside your super.
When the sum is hard to do
Moneysmart suggests speaking to a financial adviser if you need help deciding whether you need life cover, and how much. What that conversation involves, and how to check an adviser, is in general advice, personal advice and plain information.
Sources for this page, read 7 October 2026