Do you have enough life insurance? More importantly, how do you know if you have enough? The right amount of life insurance differs for everybody. In order to figure out how much life insurance is enough for you, consider the following:
Risk factors to consider with life insurance
The first step to figuring out how much life insurance is right for you is to determine your personal risk factors. For most families, these include:
- Mortgage or other debts
- Loss of income to the family
- Loss of primary caregiver services from a stay-at-home parent
- Disability that causes a loss of income
- Critical illness prevening the abilty to work
- Future expenses for a childs education.
- Final Expenses
Insurance as an investment product
For others, the thought of investing in stocks, bonds and real estate is not attractive. They want to just put their money somewhere and not have to “babysit” it as it grows. For those people, their life insurance should also cover an investment component where the principal sum acts as the insurance factor and the cash value that builds up can be used to enhance the policy, withdrawn to supplement retirement, or to act as collateral for a loan.
This is achieved with whole life or universal life insurance, and it is a great product for:
- Long-term easy investing (should not be the only investment product. RRSP, RESP, etc. are still great complementing tools)
- A dual saving/lifelong insurance product to cover a child (child is insured for life and has savings being built up in his/her name)
- A way to satisfy a huge looming expense but also provide insurance funds for a beneficiary (such as capital gains tax on a secondary property upon the death of the life insured)
Now I know why I need insurance…but what’s the next step?
After you ask yourself why you need life insurance, the next step is to determine how to cover your risks and/or fund your investments.
For example, let’s say your main risk is loss of income for your family. It’s a great idea to cover this risk with insurance, but how much? Well, do you own a home? Does the surviving spouse intend to sell it if you die? Do you have equity in it? Will that equity go to a new home? Do you have cash or other assets that the spouse will liquidate? Will your spouse continue to work? Will the surviving spouse have to cover childcare costs?
You figure out how much life insurance is enough by asking yourself and your family some tough questions and by being honest about your financial situation. You can’t say, “we will have our debt cleared up in three months and then just start saving” if your history has been to shop impulsively and not pay off your credit cards each month.
You also have no idea if either of you will pass away before you have enough savings.
There are two ways you can go about this: the first is to wade through the waters on your own and figure out your risks, your assets and your liabilities, and then determine an insurance strategy to bridge the financial gaps.
The better way is to call a life insurance broker.
How can a broker figure out how much life insurance is enough?
A broker is trained to do a comprehensive or simple Needs Analysis. Your broker knows what to ask and how to determine your risks and insurance needs. Brokers are trained to take things into account, such as inflation and depreciation/appreciation on assets, so they can accurately determine the best amount of life insurance for your needs.
Once that determination is made, the broker will design a plan that changes as your needs change. Down the road, your greatest risk may not be loss of income (children grow up, house gets paid off), but critical illness (history of illness in the family as you age). The right plan, and coverage, for you will account for all of this.
Don’t stress about the future. Insure it instead!
Not knowing how to cope financially if your risks are not insured is a huge stress. Instead of worrying, call a broker today, the advice and consultations are free – all you pay for is any policy you decide to purchase. Find out if you have enough life insurance today.
Call a broker and get the peace of mind, and the right coverage, that you deserve – 1.888.498.5288