“Life insurance: How much, if any, should you have? And how much should you pay?”

IF ANY?! To quote tennis legend John McEnroe: “You cannot be serious!” Remove “if any” from that question for Generation Xers!

I know it’s awful to think about, but picture yourself dead or paralysed from a major car accident.

If dead, how deep in the financial poo would you be leaving your partner and/or family? Could they continue to meet the mortgage/rent? Car or other loans? Would good schools still be an option for the tin lids?

If you couldn’t work for two years because of an accident/illness, could you hold onto the house? Would your lifestyle have to be dramatically scaled back?

Gen Xers insurance needs are huge for two reasons. First, we’re not particularly wealthy yet. Second, we’ve got huge bills (mortgages, education bills, etc) ahead of us. One health issue could financially devastate your life.

There are four types of life insurance: death cover; total and permanent disability (major accident); trauma (major illness); and income protection insurance (long-term illness/accident).

However, there’s good news. Insurance for the under 50s is pretty cheap, life/TPD and income insurance can be paid through your super fund and, in any case, income protection is a tax deduction.

Here are some rough rules I use with Gen X clients regarding “how much”. If you’ve got young kids, about 12 times income for life/TPD, about two times income or $200,000 for trauma and then 75 per cent of your income through to age 65.

Structured properly (with some inside super), the out-of-pocket, after-tax cost can be less than 2 per cent of your income.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser.