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What If the Life Insurance You Already Have Is Nowhere Near Enough?
Most Australians have some life insurance without ever really choosing it, a small default policy bundled into their super fund, picked up automatically when the account was opened. Very few have ever actually sat down and worked out whether that number bears any relationship to what their family would need if they died tomorrow. The default figure inside most super funds is a guess built for an average member, not a calculation built for your mortgage, your kids, or your income. This guide covers how to work out the number that actually applies to you.
TL;DR
Default cover inside super is often set at a flat, low figure, commonly in the $100,000 to $250,000 range, regardless of your actual income, debt, or number of dependents.
A proper needs analysis adds up what your family would need to cover (debt, ongoing income replacement, one-off costs) and subtracts what they'd already have (existing assets, existing cover, super balance).
Income replacement is usually the single biggest component, and it should be calculated as a multiple of what's actually needed to maintain the household, not a vague "a few years' salary" guess.
Mortgage payoff is often treated as automatic, but many people underestimate this figure by ignoring the remaining loan term or forgetting other debts like personal loans and credit cards.
Underinsurance is widespread in Australia, with research consistently showing most families carry a fraction of the cover a proper needs analysis would suggest.
Cover needs change over time as debt reduces, kids become independent, and super balances grow, so a needs analysis done once at 30 shouldn't still be the number relied on at 50.
Cost isn't the same problem as coverage. Buying less cover to save on premiums defeats the purpose if the shortfall means the family can't actually manage without you.
Bottom line: the right amount of life insurance is a calculation specific to your debts, dependents, and income, not a number your super fund happened to default you into.
On This Page
Why Default Super Cover Almost Never Matches Reality
The Needs Analysis Method, Step by Step
What to Add Up: The Full List of Needs
What to Subtract: Existing Assets and Cover
Worked Example: Calculating Cover for a Young Family
Why This Number Changes Over Time
Common Mistakes
FAQ
Why Default Super Cover Almost Never Matches Reality
Most industry and retail super funds automatically enrol new members in a small amount of default life insurance, generally a flat dollar figure or a formula loosely tied to age, applied the same way regardless of whether the member has a mortgage, three kids, or no dependents at all. That default figure exists to give funds a simple, low-cost baseline, not to actually reflect what any individual member's family would need.
The gap this creates is often significant. Someone with a $600,000 mortgage, a spouse on a reduced income, and two young kids can end up carrying the same default cover as a 24-year-old with no debt and no dependents, simply because they never actively reviewed or increased it.
Worth noting upfront: WIAA doesn't sell general insurance products directly. What follows is a framework for working out how much cover you'd need, which you can then take to your fund or an insurer, or use as the basis for a conversation with us about your broader financial position.
Not sure what your current super fund actually has you covered for? A free 15-minute chat with WIAA can pull that figure and hold it against an actual needs analysis. Call 1800 942 843 or book online.
Bottom line: default cover is a starting point set by an algorithm, not a number built around your actual situation.
The Needs Analysis Method, Step by Step
A proper life insurance needs analysis works through a straightforward structure:
Add up total needs, everything your family would need to cover or replace if you died, including debt, ongoing income, and one-off costs.
Add up existing resources, what your family would already have access to, including current savings, other assets, and any existing insurance cover.
Subtract resources from needs, the difference is the cover gap, generally the amount of additional life insurance worth considering.
This isn't a single number pulled from a rule of thumb like "ten times your salary." Those multiples can be a reasonable sense check, but they ignore debt levels, number of dependents, and how much existing cover or savings already exists, which is why two people on identical salaries can have wildly different actual needs.
Bottom line: the method is simple addition and subtraction, but it only works if every relevant number is actually included.
What to Add Up: The Full List of Needs
A thorough needs calculation generally includes:
Debt payoff, remaining mortgage balance, personal loans, car loans, and credit card debt.
Income replacement, enough to replace the income you contribute to the household for a defined period, calculated against actual living costs, not just gross salary.
Dependent costs, childcare, education, and general cost-of-raising costs through to independence, particularly relevant for young families.
One-off final expenses, funeral costs and any estate administration expenses.
Existing financial goals, anything already being funded, such as a partner's retirement savings gap if their income alone won't sustain planned contributions.
Bottom line: income replacement and debt payoff are usually the two biggest line items, and skipping either one is the most common way a needs analysis undershoots.
What to Subtract: Existing Assets and Cover
Once total needs are added up, the next step is subtracting what's already available:
Existing life insurance, including default cover inside super and any personal policies held outside it.
Liquid savings and investments that could realistically be accessed.
Superannuation balance, though this is often excluded from the calculation if it's earmarked for retirement rather than immediate family support.
Other assets that could be sold, though property that's the family home is usually excluded since selling it defeats the purpose of protecting the family's living situation.
Working out exactly what should and shouldn't count as an offsetting asset is where a lot of DIY calculations go wrong. A free 15-minute chat can help sense-check the full picture. Email clientservices@whatifadvice.com.au or book online.
Bottom line: the gap between total needs and existing resources is the actual number worth insuring, not the total needs figure on its own.
Worked Example: Calculating Cover for a Young Family
Priya and Michael are 34 and 36, with two children aged 4 and 6. They have a mortgage with $620,000 remaining, no other debt, and Priya's income is $95,000 while Michael's is $80,000. They're modelling what cover Priya would need, since her income currently covers the mortgage repayments and a meaningful share of household costs.
Needs:
Mortgage payoff: $620,000
Income replacement (10 years, factoring in Michael's continued income and reduced but ongoing household costs): $450,000
Dependent costs (childcare and education contribution through to independence): $180,000
Final expenses: $15,000
Total needs: $1,265,000
Existing resources:
Default super life insurance: $180,000
Liquid savings: $25,000
Total existing resources: $205,000
Cover gap: $1,265,000 minus $205,000 = $1,060,000
Priya's default super cover of $180,000 covers roughly 14% of the calculated need. A needs analysis like this doesn't mean $1,060,000 is automatically the right policy to buy, premium cost, budget, and risk appetite all factor into the final decision, but it gives a concrete, calculated starting point rather than a guess.
Bottom line: the size of the gap between default cover and actual need is often far larger than people expect until they run the numbers.
Why This Number Changes Over Time
A needs analysis isn't a one-off exercise. The right cover amount at 30 with a large mortgage and young kids is generally very different from the right amount at 50 with a smaller mortgage, older kids, and a larger super balance. Reviewing the calculation periodically, particularly after major life events like having a child, buying a property, or paying down significant debt, keeps the cover aligned with the actual situation rather than locked to whatever was calculated years earlier.
Bottom line: cover that was right five years ago isn't automatically right today, and it's worth treating this as a recurring check rather than a set-and-forget decision.
Common Mistakes
Relying on the default super figure without ever checking it. Most default cover is a low, flat amount that assumes nothing about individual circumstances.
Using a rough salary multiple instead of an actual calculation. "Ten times salary" ignores debt levels and number of dependents entirely.
Forgetting non-mortgage debt. Personal loans, car finance, and credit cards are easy to leave out of the total.
Double-counting super. Treating a super balance as both retirement savings and death benefit cover can understate how much is actually needed.
Buying less cover to reduce premiums without checking the resulting shortfall. Cheaper cover that doesn't actually meet the need creates a false sense of security.
Getting the needs analysis right the first time avoids under-insuring now and overpaying to fix it later. Call 1800 942 843 to work through your own numbers with an adviser.
FAQ
Is the life insurance inside my super fund automatically enough? Generally not. Default cover inside super is usually a flat, low figure not calculated against your actual debt, income, or dependents, so it's worth checking against a proper needs analysis rather than assuming it's sufficient.
How much life insurance do most Australians actually need? There's no single figure that applies to everyone. It depends on remaining debt, number of dependents, income, and existing assets, which is exactly what a needs analysis calculates individually.
Should I include my mortgage in the calculation even if my partner could keep paying it? Generally, yes, at minimum as an option to fully or partially pay it off, since it removes ongoing pressure on the surviving partner's income during an already difficult period.
Does my super balance count as existing resources in the calculation? It depends. Some needs analyses exclude super balances since they're earmarked for retirement, while others include a portion if it would realistically be accessed for immediate family needs. This varies by circumstance.
How often should I redo this calculation? Generally after any major life change, having a child, buying property, paying off significant debt, or a substantial income change, and as a periodic check every few years regardless.
Is more life insurance always better? Not necessarily. Over-insuring means paying premiums for cover beyond what's actually needed, which is its own inefficiency. The goal is matching cover to the calculated gap, not maximising it.
Can I do a needs analysis myself, or do I need an adviser? You can start the calculation yourself using the method outlined here, though an adviser can help make sure nothing's missed, particularly around what assets should and shouldn't offset the total.
Does this apply to stay-at-home parents without an income to replace? Yes, generally. The cost of replacing childcare, household management, and related services a stay-at-home parent provides is a real financial need, even without a salary attached to it.
How does this interact with other cover like income protection or TPD? They cover different scenarios. Life insurance pays a lump sum on death, while income protection and TPD cover different circumstances such as illness or injury. A full needs analysis often considers all three together, and if a serious illness diagnosis (rather than death) is the specific concern, our trauma and critical illness insurance guide covers that ground separately.
Will insurers ask for a needs analysis before approving cover? Some insurers and advisers use a needs analysis as part of the application process, though requirements vary by insurer and policy type.
Ready to Work Out Your Actual Cover Gap?
If your only life insurance is whatever your super fund defaulted you into, there's a good chance it's covering a fraction of what your family would actually need. A free 15-minute chat can run the real numbers.
Call us: 1800 942 843
Book online: free 15-minute chat, no cost, no pressure
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WIAA has helped Australians work out real insurance needs rather than relying on fund defaults, across Toowong, Grange, and Melbourne CBD. WIAA operates under AFSL 528250 as an Authorised Representative of Beryllium Advisers Pty Ltd.
General Advice Disclaimer: This article contains general information only and does not take into account your personal objectives, financial situation, or needs. It is not personal financial advice and should not be relied upon as such. Insurance needs vary significantly by individual circumstances, and specific cover amounts and product recommendations should be discussed with a qualified adviser. WIAA does not sell general insurance directly.