Life Insurance
Need help figuring out how much life insurance you need?
Let one of “your advisors” give you a call and guide you through the process!
Take 1 minute to fill out this form:
Would you like to figure out how much insurance you should have on your own? Here is a guide:
SPOUSE 1
SPOUSE 2
Ok, let’s go through each line using the example of Spouse 1:
Self explanatory. You could change this to 10k or 20k, won’t make much difference in price and if the funeral costs less, then there is more left over for the family.
This is where you can leave something to your church or to a cause you believe in. Ex. Heart & Stroke Foundation or Breast Cancer – again, adding 10k to your coverage won’t affect the cost of your policy much.
Costs for education are going to be different depending on where you live. This calculation assumes it costs 10k a year for 5 years to get a degree. If you have 2 kids, then you would need 100k. This is so, if one spouse passes away, the other spouse no longer needs to worry about saving for their children’s future education needs. Maybe you feel that, Yes, I should help my children go to College or University if they so desire, but, I also believe that they should pay half, so they have to work and learn the value of the dollar. I also think that the child would be less likely to drop out, if he/she has helped pay for it. So in this example, we have put in 50k. That is half of what 2 children would need.
Just that, it’s a spot for something unique to your situation – maybe child support for a child that doesn’t live with you? OR repayment of a debt to your Uncle because he lent you money for a business that failed. Could be anything.
This is where we enter the balance owing on your home mortgage. If you currently have Mortgage insurance in force, you would be able to cancel it once your new life insurance policy is in force. The money saved from just your mortgage insurance can often be enough to offset your entire life insurance policy, even though the life insurance policy has a lot more coverage. You don’t have to take our word for it. You can read any financial planning book and 99.9% of them will give this same advice. Life insurance is a far superior product and will save you money over the long run vs. mortgage insurance. If you would like another source of info on mortgage insurance, check out what CBC Marketplace has to say. Google “CBC Marketplace – In Denial”
This would be any other debts you want cleared off. For example, Car Loans, Lines of Credit, Credit Cards etc. Even if you are pretty good at keeping your debts clear and don’t currently have a car loan, it still makes sense to put something in here as you are probably going to buy a vehicle again in the future, which will likely entail some sort of loan.
So far we have been looking at things to add to how much life insurance you need. This is a line item that can lower how much you need. In this example we have assumed that Spouse 1 has 100k of coverage through the group plan at work. Now some advisors choose to not even put this in the equation, because people tend to change jobs and employers change group plans. Now if you are dead set that neither of those are going to happen then keep it in there. For example, if you are a CPA and have coverage through your association, then that coverage will stay with you, even if you change employers or start your own company.
Another line item to decrease how much coverage you need. This could be a policy you bought a few years ago or could be a policy your parents bought for you when you were a child.
The most important area to cover. This is where we figure out how much money your spouse would need in a lump sum, to invest, to create a monthly payment to replace your income. In other words, you are gone, but the bills continue. We need to replace your income so life can continue at the same level as it is now. You should use gross income here, so if you make 60k a year, that is 5k per month. You bring home less than that after tax, but if your spouse has invested a lump sum that is paying them every month, that income will also be taxed. Therefore, it should work out similarly. In this example we have assumed 3000 per month x 20 years. (the 2nd child is only 2, so 20 years is pretty close to finished university). The lump sum needed, assuming the cash would be invested at a safe, achievable 4%, is 650000.
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