How to stop paying too much (or too little) for life insurance
Life insurance is one of those things that’s easy to put off—until you need it. And by then? Too late. But how much is too much life insurance? And how little is too little?
Some people end up paying for cover they don’t really need. Others risk leaving their family financially stranded. So how do you find the sweet spot?
1. Cover your mortgage (but don’t stop there!)
A mortgage is usually the first thing people think about when setting up life insurance. If you have a home loan and pass away, the last thing you want is your loved ones struggling to make repayments—or worse, losing the house altogether.
💡 Stat: In Australia, the average mortgage debt is now $600,000 (ABS, 2024).
Most people only cover their mortgage balance, thinking it’s enough. But here’s the catch:
Your mortgage is just one financial obligation.
Everyday bills, groceries, school fees, and other expenses don’t stop.
If you have kids, a partner, or anyone who depends on you financially, you need more than just mortgage cover.
✅ Rule of thumb: Cover your mortgage and lost income for at least 10 years if you have dependents.
2. Lost income is a bigger deal than you think
hink about it. If you pass away, your salary disappears overnight. But the bills? They keep rolling in.
For many families, the biggest financial hit isn’t the mortgage—it’s the loss of income.
Here’s a simple way to calculate it:
Start with your annual after-tax income.
Subtract your yearly mortgage repayments.
Multiply what’s left by 10 years (if you have dependents).
Example:
Salary: $100,000
After-tax income: $75,000
Mortgage repayments: $25,000 per year
Loss of income to cover: $50,000 per year x 10 years = $500,000
That’s on top of your mortgage cover to make sure your family isn’t struggling if you’re gone.
3. Do you need to cover investment properties?
Now, here’s where it gets personal.
If you have an investment property, do you want your family to keep it or sell it?
If keeping it is a priority (for rental income or a future asset), you might want to include it in your life cover.
Some people choose to leave out investment properties because they assume their family will sell them. Others want extra cover to keep it in the family. It’s all about what’s important to you.
4. Factor in funeral costs
Funerals aren’t cheap. The last thing your family needs is a $15,000+ funeral bill while they’re grieving.
💡 Stat: The average Australian funeral costs between $8,000 and $15,000 (Finder, 2024).
If you don’t have savings set aside, adding an extra $15,000 to your life cover can make things easier for your loved ones.
5. The mistake most people make: underinsuring
A lot of Aussies only cover their mortgage, assuming that’s enough. But what about:
✔ Daily expenses?
✔ School fees?
✔ Lost income for years?
💡 Stat: A 2022 report by the Financial Services Council (FSC) found that approximately 1 million Australians are underinsured for life and TPD cover, while 3.4 million are underinsured for income protection. Many Australians rely solely on their default super fund insurance, which often falls short of providing adequate financial security for dependents
Underinsurance is a huge problem, and many people don’t realise it until it’s too late.
✅ Your life insurance should cover more than just your home loan.
So how much life insurance is enough?
🔹 If you have dependents → Cover your mortgage + 10 years of lost income
🔹 If you don’t have dependents → Cover just your mortgage + funeral costs
🔹 If you have investment properties → Decide if you want to cover them, or if they’ll be sold
At Skye Wealth, we help you find the right balance—without overpaying or leaving your loved ones exposed.
Got questions? Let’s chat.
Resources & References
Australian Bureau of Statistics (ABS) – Average Mortgage Debt
🔗 https://www.abs.gov.au/statisticsFinder – Average Funeral Costs in Australia 2024
🔗 https://www.finder.com.au/funeral-insurance/cost-of-a-funeralFinancial Services Council (FSC) - Australia’s Life Underinsurance Gap Report (2022)