Life insurance: How much you need and why

23 February 2018

Buying your first home is a huge milestone, and it’s one that often gets you reflecting on life’s bigger picture and what’s really important.

What would happen to your loved ones if something tragic was to happen to you? How would they pay the mortgage?  What would happen to their lifestyle?

It’s a horrible thought, however there is help at hand. Getting life insurance in place now may provide financial help in the future, if you died, to assist with repayment of the home loan debt. It could mean that your partner and/or children wouldn’t be left with paying the mortgage without you around to help.  

Just like the scout motto says – ‘Be prepared’. The longer you wait to take out insurance cover, the harder it may be to get the cover you need to protect your family.

How life insurance is like a parachute

Think of life insurance as a parachute, which kicks in to help ensure that those you care about have a softer landing.

Ask yourself: “What challenges are they likely to face?” and: “How much money will be needed to overcome those challenges?”

Our life insurance calculator can give you an indication of how much cover you might need, based on your current commitments and assets.

Work out how much life insurance you need

Everyone’s situation is different. An Adviser is best equipped to help you identify the level of life insurance cover you need, but the following considerations will help get you started.

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1. People

Who or what is at most risk in the event of your death or terminal illness? 
This may include members of your family, individually and collectively, as well as any business partners and other people you may have financial arrangements with (such as co-owners of your prized boat).

While your immediate priority is your family, contracts and financial commitments or arrangements you have with other people may be impacted and should be thought about now. 

2. Cost of living

How much money will your family need to live on for at least the next year or two while they find their feet in the event of your death or disability?
A great place to start is to analyse your current living expenses and lifestyle costs to work out how much your family would need.

3. Debt

How much debt do you have? 
Always an ugly thing to think about, but its good to be thorough. When figuring this out you need to include your mortgage and things like credit cards, personal loans or hire purchases. Make sure to factor in any business debts and other financial obligations and make sure you’ve got strategies in place to take care of them.

4. Aftermath

What is likely to happen following your death? 
It’s always a good idea to consider having a bit more life insurance cover than just the total amount of your debts as any extra money may give your family the time and space to take it all in.

Consider the cost of immediate living expenses, potential loss of income if your partner is off work for an extended period of time to care for you, or takes time off work to grieve or to look after dependents, and the immediate financial obligations that will have to be met in the first few days or weeks after your death, including bills and funeral costs.

Need help figuring this all out?

These questions are designed to help you consider your personal situation and the implications of your unexpected death, disablement or terminal illness, but there’s no substitute for talking to the experts.

An Adviser has the training and real-life experience to help you work through the above in more detail and to consider your personal circumstances when exploring insurance cover options.

Get a quote for life insurance

Important information

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The content on the First Home Hub is for information only. The information is of a general nature and does not constitute personalised advice. To the extent that any of the above content constitutes financial advice, it is class advice only. Before taking any action, you should always seek financial advice or other professional advice relevant to your personal circumstances. While care has been taken to supply information on this website that is accurate, no entity or person gives any warranty of reliability or accuracy, or accepts any responsibility arising in any way including from any error or omission.

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