Life Insurance Calculator

Mitch Ramsbotham

Financial Expert Updated on June 20, 2023

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It can be difficult to know how much Life Insurance cover you may need but with so many Australians underinsured, it’s so important to gain the right level of protecting for you and your family.

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The death of a loved one, whether it be as a result of illness or an unexpected event, presents considerable difficulties for family members, friends and loved ones left behind. This difficulty can include the burden of funeral and burial costs, general living expenses, and unpaid debts. 

This article provides helpful information about life insurance and, in particular, the factors that affect the amount of life insurance cover required. 

This guide also discusses how to calculate the amount of life insurance cover you need, depending upon your stage of life, exclusions and how life insurance calculators can assist in ensuring you have adequate life insurance coverage.  

What Is Life Insurance?

Life insurance is an agreement wherein an insurer agrees to pay a specified amount or lump sum to a beneficiary after the person insured dies or if the insured is diagnosed with a terminal illness. 

The insurer, pursuant to the terms and conditions of the policy agreement, must pay the specified amount, so long as the premiums, being the annual or monthly payments to the insurer, have been made and the policy is considered current and up to date. 

A life insurance payout can be used to assist grieving loved ones with funeral and burial expenses and pay off any lingering debts and ongoing household expenses.

Guide to Use a Life Insurance Calculator

A convenient way to know how much life insurance or income protection cover you need is to use a life insurance calculator. 

Each calculator may vary depending on the website. Moreover, some might only calculate life covers and not other types of life insurance like total and permanent disability (TPD) cover, income protection insurance, or trauma cover.

MoneySmart is one website that provides a life insurance calculator. 

Some life insurance calculators may require you to enter information like your annual income, liabilities and expected expenses, debts like credit cards, personal loans, car loans, or car repayments, funeral expenses or funeral costs, the number of years your dependents will require financial support, savings, and other expenses the insurance coverage will be needed for. 

Be reminded that the calculated amount of cover is only an estimate based on the information you provide. Thus, the calculator may not consider all of your financial needs, financial situation, personal circumstances, or eligibility.

How to Calculate the Amount of Coverage You Require

Some insurance companies suggest that an average amount for life insurance is equal to approximately six to ten times the amount of your yearly salary. 

Another way to calculate the approximate amount of cover you require is to multiply your yearly salary by the number of years left before retirement. 

What Is the Formula for Calculating Life Insurance?

There is no set formula to calculate the cost of life insurance. Just as each individual is different, each insurance provider has other guidelines and processes that they follow to determine the cost of a policy’s premium. 

Similarly, individual circumstances vary from person to person, with different people requiring different levels of cover and life insurance needs. 

If you are unsure about the level of coverage you need, it is best to speak with a qualified financial adviser so they may provide you with proper financial advice and life insurance products appropriate for your circumstances. 


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What Factors Do Insurers Consider When Calculating My Life Insurance Premium?

Several factors are considered by insurers when determining how much your life insurance premium will be. These include: 

● Age 

● Gender

● Occupation

● Lifestyle

● Current medical condition

● Past medical history

● Amount of cover required

● Smoking status

Disclosing the details of any current or past medical history and conditions is extremely important, with non-disclosure creating the possibility of your life insurance premium not being paid out. 

Most insurers consider a pre-existing medical condition to be a medical condition that existed prior to you entering the agreement with the insurer and purchasing the life insurance policy. 

Meanwhile, due to the health risks associated with smoking and its detrimental effects on life expectancy, insurance premiums are more expensive for those who are smokers. On average, smoking increases life insurance premiums by approximately 81%. 

How Much Should Death Cover Be?

Your life insurance payout also referred to as your death cover or term life insurance, will be a figure that is specific to your family and financial circumstances. 

The benefit should be enough to replace your income, pay out any lingering debts, and a little extra to ensure that the rising living cost and inflation are considered.  

What Is the Average Cost of Life Insurance in Australia?

Monthly life insurance premiums can range from as little as $32 a month to $593 per month and even more. These figures depend on various factors such as age, gender, smoking status and the level of cover provided. 

For example, a monthly life insurance premium for a non-smoking female aged in her 20s with $500,000 of cover is estimated to cost $32 a month. A non-smoking male of the same age can expect to pay approximately $48 a month. 

As premiums increase with age, a non-smoking female aged in her late 50s, on average, will pay approximately $213 a month, with a non-smoking male of the same age paying approximately $300 a month. 

Stepped or Level Premium: Which One Should You Choose?

When applying for insurance, generally, you can pay your premium in two ways.

  • Stepped Premium: This type of premium increases every year as you age.
  • Level Premium: This premium type is usually based on your age when the policy began and does not change as you get older. 

Level premiums can be more cost-effective if you keep the insurance for a long time. 

Suppose you only need insurance coverage for a short period. A stepped premium may be a more appropriate option for you as you can save money while knowing your loved ones are protected due to it being cheaper in the early years. 

Default Assumptions 

Actuarial assumptions are used by life insurance companies and estimate an uncertain variable or event to calculate insurance benefits or premiums. An actuarial assumption might include predicting a person’s lifespan based on age, gender, and health conditions.

Limitations of life insurance 

  • Life insurance can be expensive for old or unhealthy people. 

Your premiums are determined by your age, medical profile and history. Thus, life insurance companies will increase the cost of coverage if your profile has anything that can potentially increase your risk of dying early. 

  • Whole life insurance is expensive no matter what age the insured takes out cover. 

This type of insurance is more expensive because it lasts your entire life. However, most people don’t require life insurance after their retirement, as they have no dependents, they no longer have large expenses, and they don’t have outstanding debts.

  • It’s easy to be misled if you’re not well-informed. 

Some factors about life insurance are not straightforward and contain many disclaimers. Before applying for life insurance, you must do your research, read through and review financial services guides, relevant product disclosure statements (PDS), or consult a qualified financial advisor. 

Transacting with insurance companies with an Australian business number (ABN) and an Australian financial services license (AFSL) is highly suggested.

Still not sure where to start, or want help securing the right insurance faster? 

That’s okay!

Many people may be unaware of this…but just like you, 41% of Aussies intend to get financial advice rather than going it alone, according to an Australian Securities and Investments Commission (ASIC) report.

You can reach out to My Money Sorted to guide you for free before you seek professional advice from an insurance expert!

When you book a call with My Money Sorted, you’ll:

✓ get a better understanding of your money matters

✓ have an idea of your money goals

✓ be matched with the right insurance expert who can help simplify your search for an insurance policy that fits your needs

My Money Sorted is your stress-free pathway to getting ahead with your money. Here’s what your journey will look like:

Step 1: Start off with a quick money matters session with My Money Sorted

Step 2: Get matched with a Insurance Expert that’s right for your money situation

Step 3: Take the first step towards getting the protection you need with a clear and sound roadmap prepared by an Insurance Expert

It’s that easy!


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Does life insurance stop?

It may depend on what type of life insurance you have.

Term life insurance policies stop after a fixed number of years. Meanwhile, permanent life insurance policies will stay active until the insured stops paying premiums, surrenders the policy, or dies.

What is a pre-existing condition for life insurance?

A pre-existing condition is a medical condition or illness that existed before an individual applies for or starts receiving life insurance.
Medical conditions include asthma, diabetes, heart diseases, and cancer. Most of these illnesses are considered chronic or long-term conditions.


  1. Life Insurance Guide to Policies and Companies


  1. What is life insurance?


  1. How much does life insurance cost?


  1. How much does life insurance cost?


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