How Much Life Insurance Do I Need?
Most tradies will have some level of life insurance within their superannuation.
This is definitely a good thing, but unfortunately many tradespeople (and most of the general public) confuse ‘having life insurance’ with ‘having sufficient life insurance’.
So how much life insurance should you have? In this guide we’ll try to answer that, and we’ll also take a look at how the insurance within your super fund fits into the picture.
Isn’t My Super Enough?
All tradespeople in Australia will have superannuation, and in almost all cases that super fund will hold some level of life insurance.
But with the average amount of life insurance in superannuation being just $70,0001, is this really enough?
For the vast majority of tradies $70,000 will be nowhere near enough, especially if you have a family, a mortgage or both to look after.
What Do You Want To Happen?
If you were to die tomorrow, what would you want to happen? Or more to the point, what would you want NOT to happen?
More than likely you wouldn’t want to burden your loved ones with your debts, nor would you want to leave them suffering financial hardship.
This gives us a pretty good clue on what your life insurance will need to cover. You’ll want to have enough to repay all of your debts, and enough to ensure your loved ones can enjoy some level of financial security.
How this translates into a dollar amount really depends on how far you want to go with it.
Some tradies want to ensure that their family will be looked after for the rest of their life in the event that the tradie himself suffers an untimely death.
Other tradies may only want to provide sufficient funds so that their family is looked after for a year or two, and after that they will hopefully be able to fend for themselves.
Neither of these answers are right or wrong, and it depends on the individual’s circumstances.
A tradesman whose wife works full time and has high school aged children will have completely different needs to one whose wife stays home to look after their much younger children.
How Much Do I Need?
Continuing on from above, how much you need really depends on what you want to happen.
For starters you should at least have enough life insurance to repay all of your debts. This may include your mortgage, car loan, credit cards and store cards.
Whether or not you repay business related debts depends on your business structure.
If you’re a sole trader the answer will most likely be yes, but if you operate under a partnership or company structure you should speak with your accountant and financial adviser about your estate planning needs.
If you have a family that is financially dependent on you, you’ll need to work out how much you want to leave to them.
This could be worked out as a simple dollar amount. For example you might decide to leave them a lump sum of $100,000 in your life insurance and after that they’re on their own.
For those who want to provide more comprehensive protection it is important to calculate the financial needs of your family each year, and work that out over however many years that you want to continue providing for them.
This can seem complicated at first, especially when you start considering inflation and other factors, but any decent financial adviser should be able to calculate this for you with minimal fuss.
More Information
It’s certainly not uncommon for average everyday Australians to have life insurance policies of more than $1 million, and once you start calculating your needs it is easy to see why.
For more information on your life insurance needs we highly recommend speaking with a qualified financial adviser.
Here at Tradesman Insurance we have access financial advisers who specialise in the building and construction industry, and they will be able to assist with calculating your needs and providing quotes.
To take the next step please complete our online quote request or simply contact our office.
References
- “Investment and Financial Services Association Cost of Underinsurance Project – Analysis of Life Insurance Needs.” RiceWalker Actuaries. May 2005. Retrieved 29 July 2013.
