Life Insurance Calculator: How Much Cover Do You Need in 2026?

A simple starting point for calculating life insurance needs:

Life insurance need = Debts + Income replacement + Future expenses – Existing assets

Let's break this down:

• Debts: Your mortgage, car loans, credit cards, personal loans, and any other liabilities you'd want cleared.

• Income replacement: How many years of your income would your family need to adjust? Multiply your annual income by 5–15 years, depending on your family's situation.

• Future expenses: Consider school fees, university costs, childcare, and any other major expenses you'd want covered.

• Existing assets: Subtract savings, investments, existing life insurance (including super), and any assets that could be liquidated.

Let's say you're a 40-year-old professional in Melbourne:

• Annual income: $110,000
• Mortgage: $550,000
• Car loan: $25,000
• Credit card debt: $5,000
• Children's education fund needed: $100,000
• Years of income replacement needed: 7 years
• Existing super life cover: $150,000
• Savings: $30,000

Calculation:

• Debts: $550,000 + $25,000 + $5,000 = $580,000
• Income replacement: $110,000 x 7 = $770,000
• Future expenses: $100,000
• Total need: $580,000 + $770,000 + $100,000 = $1,450,000
• Less existing assets: $150,000 + $30,000 = $180,000
• Cover required: $1,450,000 – $180,000 = $1,270,000

Your ideal cover amount depends on several personal factors:

• Number of dependents: More children or elderly parents relying on you means higher cover needs.

• Partner's income: If your partner earns a significant income, you may need less cover than a single-income household.

• Lifestyle expectations: Do you want your family to maintain their current lifestyle, or would a more modest standard be acceptable?

• Inflation: Consider that living costs will rise over time. Some policies offer inflation-linked cover.

• Age of children: Younger children require more years of support than teenagers approaching independence.

When calculating your life insurance needs in 2026, watch out for:

• Underestimating expenses: Don't forget ongoing costs like utilities, insurance, healthcare, and extracurricular activities.

• Ignoring stay-at-home parents: The economic value of childcare, cooking, and household management is significant—often $50,000–$80,000 per year.

• Forgetting about super insurance: Check your super fund's default cover before buying additional insurance.

• Not reviewing annually: Your needs change as you pay down debt, have more children, or your income grows. Review your cover each year.

Many insurers and comparison sites offer online life insurance calculators. These tools ask about your income, debts, dependents, and existing cover to estimate your needs. While useful, remember they're a guide—not a substitute for a detailed review of your personal circumstances.

The right amount of life insurance gives you peace of mind without overpaying. Start with the basic formula, adjust for your unique situation, and revisit your calculation whenever your circumstances change. If in doubt, a financial adviser can help you fine-tune your cover to match your family's needs.