23 April 2026 · Philippa Billings, Head of Advice Compliance
Most Australians with life insurance are covered for the wrong amount. Some are paying premiums on cover that's far higher than their household actually needs. Others — many, in fact — have a significant gap between what they hold and what would genuinely protect the people who depend on them. Working out the right number isn't complicated, but it does require looking at a few things together.
What is life insurance and what does it actually pay out?
Life insurance — sometimes called death cover — pays a lump sum to your beneficiaries if you pass away. In Australia, it's available through your superannuation fund (where most people have it by default) or as a standalone policy purchased outside of super.
The payout is designed to cover things like outstanding debts, the ongoing living costs of dependants, and any immediate expenses your family would face. It doesn't replace your income indefinitely, but a well-calculated amount can give your family time and financial breathing room when they need it most.
So how do you work out how much you actually need?
There's no single formula that works for everyone, but a common starting point is to think across three categories.
The first is debts. Your mortgage, personal loans, car loans and any credit card balances don't disappear when you do. If there are joint debts, your partner may be left responsible for the full balance. Life cover is often sized to clear these outright.
The second is income replacement. Many people consider how many years of income their household would need to maintain its standard of living. For a family with young children, that could mean ten or more years. For a couple without dependants approaching retirement, it might be far less.
The third is final expenses and one-off costs. Funeral costs in Australia average between $5,000 and $15,000. There may also be legal costs, medical bills, or the cost of adjusting to a single-income household.
When you add those three together, it's not unusual for a family with a mortgage and young children to need $800,000 to $1.5 million or more in life cover. For someone single with no dependants and no debt, the right amount might be much lower.
Why the default amount inside super often isn't enough
Most Australians receive a default level of life insurance when they join a superannuation fund. While it's better than nothing, that default is typically calculated using broad demographic assumptions — not your actual debts, your income, or the number of people who rely on you.
It's quite common for someone with a mortgage and two children to find they have $200,000 in default cover when they'd genuinely need $800,000 or more. That gap — between what you have and what you need — is what's sometimes called the underinsurance problem, and it affects a large proportion of Australian households.
Does life insurance inside super count the same as cover outside super?
Broadly, yes — the payout amount is the same regardless of where the policy sits. But there are some important differences in how the money is paid out, how quickly it's paid, and who can receive it.
When life cover is held inside super, the payout goes to the trustee of the super fund first, who then distributes it according to the fund's rules. This can sometimes take longer and may have tax implications depending on who receives it.
Life cover outside super pays directly to your nominated beneficiaries and is generally faster and more flexible. Many people choose to hold a combination of both.
What changes your life insurance needs over time?
Your circumstances change, and your cover should ideally reflect that. Some of the key events that often prompt a review include taking on a mortgage, having children, getting married, changing jobs, or paying down significant debt.
A person's life insurance needs in their 30s with a young family and a large mortgage are typically very different from their needs in their 50s with adult children and a mostly paid-off home.
How Otivo approaches life insurance needs
Otivo's free personal insurance assessment helps people work out whether their current cover is appropriate for their situation. It looks at existing cover across life, TPD and income protection, and takes into account dependants, outstanding debts, household income, age and retirement goals.
The result is a personalised advice output — a clear breakdown showing what cover is recommended, what a person currently holds, and any gap between the two. For those who are under-covered, Otivo also provides competitive quotes from major insurers, with the option to book a free 15-minute call with a licensed adviser.
How often should life insurance be reviewed?
A common approach is to review life insurance cover at least every two to three years, or sooner if circumstances change meaningfully. Changes in debt levels, family structure, income or assets can all shift the amount of cover that makes sense.
Importantly, reviewing cover doesn't mean increasing it. Some people find they've been over-insured for years — paying premiums on an amount that no longer reflects their household's actual needs.
Frequently asked questions
Does everyone in Australia need life insurance?
Not necessarily. Life insurance is most relevant for people who have dependants relying on their income, significant debts, or both. Someone who is single, has no dependants and carries little debt may have different priorities.
Is life insurance tax-deductible in Australia?
This depends on how and where the cover is held. Tax treatment is a complex area and it's worth seeking appropriate advice for your own situation.
Can I get life insurance if I have a pre-existing condition?
Many Australians with pre-existing health conditions can still obtain life insurance, though it may come with exclusions or higher premiums. It's worth comparing options across multiple providers.
What's the difference between stepped and level premiums?
Stepped premiums increase as you get older. Level premiums are higher initially but stay relatively stable over time. The right choice depends on how long you expect to hold the policy.
The information in this communication is current as at April 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.