How much life insurance is enough?

2016-06-24
How much life insurance is enough? There's no correct answer because it depends upon how much living you have to do. Read how one person began their thinking about the question 'How much life insurance is enough'? How much life insurance is enough? There's no correct answer because it depends upon how much living you have to do. Read how one person began their thinking about the question 'How much life insurance is enough'?

Meet George - logistics co-ordination ninja

He spends most of his work day chasing boxes, deadlines and freight companies.

His partner is the love of his life (and drives him crazy at times). George has a stepdaughter who he adores and a well-earned reputation as a bit of Weekend DIY Tragic, relentlessly renovating his townhouse.

Video & Case Study

So the big question he has is about life insurance and 'How much is enough?'

When you're on the second time around

He’s on his second significant relationship and is determined to make sure this one, is the best one. His superannuation balance took a hit in a past family law settlement, so George realises that from now on, he’ll have to work a little longer (and a bit smarter) to make up for lost time and resources.

So today George is getting his life insurance sorted.

Getting it right the second time.

He wants to do his part to protect and provide for his partner and his family and safeguard their long-term financial independence. George has the type of personality that likes to be prepared so he thought about what he wanted to achieve for himself and his family.

George decided he wanted to achieve 4 key things

The 4 Big Things

  1. Have enough to pay out all the debts
  2. Have enough to replace the lifetime value of his income
  3. Have enough to provide a nice place to live
  4. Have enough to leave a legacy so his big plans for his family would happen, even if he’s not there to share in them.

So how do you begin to think about the 'how much insurance is enough' question?

Let’s look at how George worked out the numbers for his ‘how much is enough’ question.

  • First he added up all his current debts (and added 5% for inflation, just to be sure). Along with the home loan, it came to around $525,000.
  • Next he calculated the value of his income until retirement. With at least a good, 25 income earning years ahead of him, on a wage of $83,000 a year, over the next 25 years George would expect to earn at least $2,075,000. (That figure actually shocked him — because he’d never stopped to consider the huge value, of his income earning potential). 
  • Finally he did a quick budget for the families big future plans. George had always wanted to celebrate his 50th birthday onboard a luxury cruise ship, and later spend some time travelling around Europe, so he could better appreciate his partner's cultural history.

Life doesn't get cheaper when your retire with grandkids

When George retires, he’s determined to be an active super-grandad to his future grandkids, a tormentor to his partner’s in-laws, and maybe spend six months or so volunteering his logistics management skills overseas with the Red Cross. He’s always tried to give back and make a difference in the world.

The budget for the 'Big Four Things'

  • All together George added up the value of his Big Four Things to be around $2,700,000.

Yep, that’s a lot of cash, but then again, life is meant for the living and you only get one chance at it, and that’s why George works so hard. So he decided that was the level of life insurance he (and his budget) were comfortable with. Sure, the closer to retirement he gets and the more he earns he’ll adjust that number down as he needs.

How much is peace of mind worth?

But until then, if something terrible happens and George passes away unexpectedly, he now feels finally relieved and happy (and ‘kinda proud’) that his plans to live a bigger life with his new family will continue, even if he’s gone.

Life is about being able to keep your promises

For George, having his life insurance in place is about being able to keep your promises and honour the commitments you make, even if you’re no longer there.

Is it a financial decision or an emotional decision?

Now whether you think life insurance is a financial decision or an emotional decision (or perhaps a bit of both), we understand that’s it’s ultimately about love, the future and reality.

We like to say it’s about Keeping Good Growing.

If you want to know more about how to calculate ‘how much is enough’ for your situation, just ask us to introduce you to one of our speciality financial advisers who understands the needs of diverse families whether logical or biological, and the financial and emotional choices that we all need to make to live a bigger life.

Until then, what’s the cost of your Four Big Things?


Drew Browne

Drew specialises in helping people protect and provide for what matters most in their lives. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His company Sapience Financial and Investment Services is committed to using business solutions for good in the community, is a member of the international B1G1 Business for Good Giving Community and in 2015 certified as a B Corp. In 2017 Drew was recognised in the inaugural Australian Westpac Businesses of Tomorrow national awards. Drew writes for successful Small Business Owners and Entrepreneurs at Smallville, his blogs can be read on Amazon.com and you can connect with him on LinkedIn.

drew browne pic

Drew Browne

Sapience Founder & Director.
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