5 Easy Tips to Discover How Much Life Insurance You Need

Talk to one of our experienced advisors, today!

12 Minute read

Originally published: October 4, 2023

5 Easy Tips to Discover How Much Life Insurance You Need

Talk to one of our experienced advisors today!

12 Minute read
Originally published: October 4,  2023

5 Easy Tips to Discover How Much Life Insurance You Need

In the vast landscape of financial planning, few topics elicit as much contemplation and concern as life insurance.  For many people, it’s more than just another insurance policy; it’s a promise, a safeguard for their loved ones, and a guiding light guaranteeing their family’s financial security in their absence. But getting started in the life insurance industry can seem difficult since there are so many unknowns, from comprehending coverage amounts to comparing different policy types. 

In this blog, we aim to simplify this world. Through easy-to-follow tips and frequently asked questions, we’ll provide a roadmap to help you make informed decisions about life insurance, ensuring that your choices align seamlessly with your financial goals and family’s needs. So whether you’re just beginning your journey or looking to reassess your current policy, let’s embark on this enlightening expedition together.

Tip #1 Consider Your Current Debts and Obligations

The first step in determining how much life insurance you need is to take stock of your present debts. You may provide your loved ones security and peace of mind by making sure your coverage covers their financial responsibilities. Your current debts aren’t merely numbers on a spreadsheet; they’re commitments to lenders, service providers, and perhaps even to family or friends. They may encompass:

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  • Mortgages: This is often the largest debt carried by individuals. Think about the remaining balance on your home loan and how many years are left until it’s fully paid.
  • Personal and Car Loans: Vehicles, personal projects, or unexpected emergencies might lead to these kinds of loans.
  • Student Loans: Higher education is a valuable but often expensive endeavor. These loans can linger for years and may constitute a significant monthly expense.
  • Credit Card Debt: High-interest rates can make credit card debt particularly burdensome. Reflect on your current balance and how quickly you’re able to reduce it.
  • Other Obligations: This could include medical bills, home equity loans, or personal loans from family or friends.

By making sure that your life insurance policy can cover these bills, you can ensure that your loved ones won’t be left to deal with them after you pass away. When immediate financial demands are removed, they can concentrate on recovering and starting over.

Tip #2 Calculate Your Future Expenses

While it is undeniable that current debts are a key factor in deciding life insurance coverage, a thorough approach also includes estimating future costs. How well you plan and prepare for tomorrow’s financial needs will frequently determine how long you will live and how comfortable you can make your dependents. Here’s a closer look at some of the key considerations when estimating future expenses:

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  • Duration of Dependence: This is about more than just how soon your kids will become adults. It’s important to comprehend the details of their journey. For instance, I am aware that although my children are now adults under the law, they may still be enrolled in school or just beginning their jobs and require financial support. I therefore want to continue supporting them after they turn 18 for an additional 5–10 years.
  • Significant Milestones: Planning for life’s major events is both exciting and daunting. Personally, I’ve always envisioned giving my daughter the dream wedding she deserves, and setting aside some funds for that is important to me. Likewise, while I’m currently comfortable in my home, the idea of upgrading in the next decade is on the horizon, demanding additional financial foresight.
  • Shifts in Living Expenses: Families change throughout time, and so do their financial needs. Consider this: I anticipate my children leaving for college in the upcoming years, which could lower some daily expenses. On the other hand, I’m preparing for an increase in health and living expenses as a result of my elderly parents’ increased care needs and potential move-in.

Our financial demands are dynamic, just like life itself. By making projections for future costs, we’re not just reacting to the present but also actively influencing a safer, more secure future for our loved ones. It’s a balance between what’s owed today and what’s anticipated for tomorrow in the world of life insurance. By guaranteeing coverage for both, a complete safety net is created, allowing loved ones to negotiate the complexity of life with just one less concern.

Tip #3 Assess Your Assets and Existing Coverage

It’s crucial to consider the assets you’ve already accumulated and the preventative steps you’ve previously taken when determining your life insurance needs. Being overinsured can lead to paying higher premiums than necessary, which could have an effect on other aspects of financial planning.

  • Savings and Investments: Your savings accounts, fixed deposits, stocks, bonds, and mutual funds are primary resources your family can lean on. It’s crucial to keep track of their total value, especially as investments can fluctuate based on market conditions. For instance, if you have $100,000 in savings and investments, that’s a significant amount that can offset the need for equivalent insurance coverage.
  • Real Estate and Tangible Assets: Owning property or other tangible assets like jewelry or vehicles can also be counted as resources. They can be sold or rented out to provide financial support. Assess the current market value of these assets, but be mindful of how liquid they are. While a piece of jewelry can be sold relatively quickly, real estate might take longer, especially in a slow market.
  • Retirement Accounts: Funds in accounts like LIRAs, or other pension plans are essential to consider. While these are primarily for retirement, they represent a considerable chunk of assets that beneficiaries can access under certain conditions.
  • Existing Insurance Policies: Many people have more than one life insurance policy. This could be a private policy you’ve taken out, a benefit from your employer, or perhaps a smaller policy you’ve forgotten about from earlier in life. It’s essential to aggregate the coverage from all these policies. If, for instance, you’ve already secured $250,000 in life insurance benefits, this will affect how much additional coverage you may need.

By thoroughly evaluating your current assets and insurance coverage, you can ensure that your life insurance policy complements, rather than duplicates, your existing financial safety nets. Such a comprehensive approach not only offers optimal protection for your loved ones but also ensures efficient use of your financial resources.

Tip #4: Factor In Final Expenses

End-of-life costs are unavoidable and can be significant. It’s an uncomfortable subject, but by making advance preparations and confirming that these expenses are covered by life insurance, you can spare your loved ones additional worry at a difficult time.

  • Funeral and Burial Costs: The costs associated with a funeral can be surprisingly high, often ranging from $7,000 to $12,000 or even more, depending on the intricacy of the service, choice of casket, burial plot price, and other related expenses. Beyond the basics, memorial services, obituaries, and potential transportation of the body can also add to the costs. While it might seem morbid to ponder over, it’s pragmatic to account for these when considering life insurance coverage.
  • Medical Bills: End-of-life care can come with significant medical bills, especially if there’s a prolonged illness or hospital stay involved. Even with good health insurance, out-of-pocket expenses can accumulate. Procedures, medications, and hospice care might not be fully covered, leading to additional expenditures. It’s advisable to anticipate and incorporate potential medical costs, ensuring they won’t become a burden for those left behind.
  • Other Related Expenses: There are often overlooked costs tied to the end of life. For example, legal fees for probate or executing a will, or costs related to settling any unresolved financial matters. These, while not as immediate as funeral or medical costs, should be on the radar when calculating how much life insurance is necessary.

Life insurance provides more than financial security for the present and future by replacing lost income. Also, it’s about making sure that your loved ones are not strained or burdened by final bills, which are inevitable. By including these expenses in your coverage amount, you’re giving your family and friends a cushion so they can concentrate on grieving and remembering without having to worry about additional financial obligations.

Tip #5 Reevaluate Periodically

Life insurance shouldn’t be something you buy once and then forget about. As life progresses, circumstances change, and these adjustments are accompanied by shifting financial needs and obligations. Your life insurance must be periodically reviewed to make sure it is still adequate and appropriate.

  • Life Milestones: Significant events like marriage, the birth of a child, purchasing a new home, or starting a business can greatly alter your financial landscape. For instance, welcoming a new child might necessitate more coverage to ensure their upbringing and education needs are met. Conversely, once a mortgage is paid off, you might find that your required coverage decreases.
  • Career and Income Changes: A promotion, job change, or even a decision to become self-employed can lead to fluctuations in income. These changes can affect both your financial responsibilities and your ability to pay premiums. Periodically reassessing your insurance in light of income changes ensures that you’re neither overstretching nor under-protecting yourself.
  • Retirement Planning: As you approach retirement, your financial priorities and needs may shift. You might have fewer dependents relying on your income, but you might also have new considerations like estate planning or leaving a legacy.
  • Health Considerations: Changes in health can impact life insurance in multiple ways. New health concerns might underscore the importance of securing additional coverage. Meanwhile, improvements in health might lead to more favorable premium rates if you decide to apply for a new policy.
  • Market and Policy Changes: The insurance market itself can evolve. New products, policy options, or changes in premium rates can present opportunities to adjust your coverage or switch to a policy that’s a better fit.

Reviewing your life insurance plan on a regular basis is not only advisable, but also crucial. You may ensure that your loved ones are covered and that you are making good investments in their future by matching your coverage with your present life situation. Reevaluating every few years or after any important life event is a solid general rule of thumb. This proactive strategy guarantees that your policy will continue to fulfill its intended function, which is to give you financial stability and peace of mind.

Conclusion: Empowering Your Financial Future Through Informed Choices

As we conclude this educational journey into the world of life insurance, one point stands out: proactive planning is essential. Life, with all of its unpredictability, emphasizes the importance of protecting our loved ones from unforeseen financial storms. While the complexities of life insurance may appear intimidating at first, with the correct knowledge and a dedication to frequent reevaluation, you can navigate these waters with confidence. Remember that life insurance is more than just a transaction; it is a testament to your foresight and love for those you care about. You are creating a legacy of security, peace, and provision for the future by making informed decisions today. Whatever your stage of life or circumstances, may this guidance serve as a lighthouse, illuminating your path to a secure tomorrow.

Frequently Asked Questions (FAQs) about Purchasing Life Insurance

Life insurance provides a financial safety net for your loved ones in the case of your untimely death. It can help cover emergency obligations like funeral bills, pay off existing debts, provide for your family’s daily living expenses, and even support long-term goals like your children’s education or your spouse’s retirement. In short, it assures that your dependents can maintain their standard of living without the added burden of financial hardship.

The appropriate level of coverage is determined by the individual’s financial needs and ambitions. Consider your existing debts, income, future expenses (such as your children’s education), and any other financial responsibilities. You can get assistance from resources like life insurance calculators or financial advisors when deciding on the right level of coverage.

Term life insurance provides coverage for a specific period, like 10, 20, or 30 years. If you pass away during the term, the policy pays out; if not, there’s no return on the premiums paid. Whole life insurance, on the other hand, provides lifelong coverage with an added component of a cash value that can be borrowed against or even cashed in. It generally comes with higher premiums compared to term life due to the lifetime coverage and cash value features.

Yes, having a pre-existing health condition doesn’t necessarily exclude you from getting life insurance. However, it might influence your premium rates or the terms of your policy. Some insurers specialize in high-risk policies or may offer graded benefits where the full death benefit is not paid out until a specified period into the policy. It’s essential to shop around and perhaps consult an insurance broker to find the best policy for your situation.

In general, life insurance death benefits paid to a beneficiary are not subject to income tax. However, there may be tax implications in some circumstances, such as when an insurance is transferred to a beneficiary as a paid-up policy. It’s always a good idea to consult a tax professional to properly understand any potential tax repercussions.

Find a solution for what you’re looking for 

By understanding and thoughtfully choosing life insurance, you’re not just planning for the unexpected—you’re gifting peace of mind to both yourself and your loved ones for the days ahead. At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to ensure the best solution for you and your needs. We provide expert life insurance solutions, including no medical life insurance, critical illness insurance, term life insurance, and permanent life insurance to build the best package to give you the protection you need. 

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, British Columbia, and Alberta including areas such as Kitchener, Calgary, and Kelowna

Talk to an advisor today.

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