How Much Should I Budget for Insurance?


In today’s uncertain times, having insurance is crucial for Australians. Instead of asking if insurance is needed, we should consider how much of our monthly budget should go towards it. Finding the right balance between adequate coverage and financial stability is like mastering a dance between protection and affordability.


Understanding the Diversity of Australian Insurance Needs

Before you can budget for it, you need to understand the vast array of insurance options available. From health to motor, life to income protection, Australians are offered a comprehensive suite of contingency covers. Each insurance type has its own intricacies, stipulations, and costs. It’s paramount to evaluate what suits your lifestyle and risks best.

  • Health Insurance  – The question of ‘how much’ begins with ‘what kind’ when it comes to medical insurance. Australians have the option of private health insurance or relying on the public system. Assessing personal health needs, especially over one’s lifespan, is pivotal. Maturing into an older age could herald increased health expenses and the need for a more comprehensive plan. On the flip side, a robust public health system may suffice for those in good health with minimal requirements for private coverage.
  • Life Insurance – Life insurance premiums are often viewed through the grim lens of mortality, yet they offer a semblance of financial security for the loved ones left behind. There is no one-size-fits-all in life insurance; family structure, debts, and income levels dictate the necessity and coverage required. Term life policies, covering a specific period, may be a more affordable choice for younger adults, whereas whole-of-life policies provide certainty for dependants throughout the policyholder’s life.
  • Vehicle and Home Insurance – Property and auto insurance can be some of the costlier segments, yet arguably the most immediately rewarding in the event of an incident. Vehicle and home insurances are generally legally required and largely depend on the value and location of the asset. Dissecting the inclusions, excess fees, and the likelihood of claims due to environmental factors or personal habits, like regular travel, should influence your budgeting for these covers.


The Price of Peace of Mind

Aside from registering the financial strain of insurance premiums, it’s instrumental to appreciate the emotional and practical value they provide. Insurance isn’t merely a financial backstop—it’s a peace of mind knowing that when life throws a curveball, the safety net is there. This intangible benefit can be challenging to quantify but should be weighed when considering insurance as a budget element.

  • Mitigating Financial Anxiety – In a study conducted by the University of Zurich and Columbia Business School, it was discovered that insurance can mitigate stress during times of financial catastrophe. Knowing that you and your loved ones are protected financially can significantly reduce anxiety, a priceless asset that should factor into your monthly insurance budget.
  • Long-Term Financial Planning – Insurance should be seen as an integral piece of the puzzle in long-term financial planning. By budgeting for the right type and amount of insurance, you are protecting your hard-earned assets from the vagaries of chance. Retirement plans and nest eggs remain secure in the knowledge that a sudden liability does not undo the carefully laid out financial blueprints.


Setting a Practical Budget for Insurance

With the diverse range of insurance types and the varied needs of individuals, setting a practical budget is an exercise in the personalised financial architecture. However, there are some common guidelines and methodologies that can be employed to tailor an insurance budget that is both secure and sustainable.

  • The Rule of Thumb – Financial experts often tout the 50/30/20 rule for budgeting, which allocates 20% of your after-tax income on savings and debts, including insurance. While the 20% may need to be distributed among various insurance needs, adhering to a prescribed percentage can serve as a rough guide to ensure a balanced approach to savings and protection.
  • The Needs Assessment – Conduct a thorough needs assessment. Break down your insurance needs into must-haves and nice-to-haves. Employ analytical tools that calculate liabilities and project potential costs over your expected life span. Engage with insurance providers to understand the costs involved, enabling you to translate your needs into tangible, budgeted figures.
  • The Adaptable Budget – Adaptability is key. Life circumstances change, and with them come new insurance requirements. Regularly review your budget and insurance covers to ensure they still align with your risk profile and financial capacity. Consider an annual review as part of your fiscal health check-up, as you may find adjustments can be made to premiums or coverage that offer better value for money.

Wrapping Up the Budgeting Ballet

Finding the right balance between protection and budget flexibility is key in managing your finances. There’s no one-size-fits-all answer to how much you should budget for insurance. But Australians shouldn’t avoid the task of figuring out a sensible amount to allocate each month.

Neglecting insurance can lead to significant long-term expenses, while excessive coverage may strain your finances and hinder sustainable planning. Finding the right balance involves conducting extensive research, considering your individual needs, and staying adaptable to life’s fluctuations.


Ensuring your financial stability through insurance shouldn’t break the bank—it should be done thoughtfully. Start your financial journey with a mindset of preparedness and logic, so you can navigate life’s ups and downs without worrying about money. In the vast landscape of Australian life, it’s better to have a reliable insurance plan to guide you than to be left without a safety net.

If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.

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