Finding out how much life insurance I need
The amount of life insurance coverage you need when purchasing life insurance in Canada will depend on your unique circumstances. To determine how much life insurance you actually need and which life insurance plan is the best for you, we strongly advise that you speak with a life insurance specialist and conduct a needs analysis. The amount of life insurance coverage you require can be estimated in a variety of ways, though.
This is among the simplest ways to determine how much life insurance you require. In essence, multiply your annual income by 10. As an illustration, multiply $50,000 by 10 to get $500,000 ($50,000 X 10 = $50,000). In order to ensure that your family can maintain their standard of living without facing financial instability in the event of your passing, you will need to purchase $500,000 in life insurance. You might want to include an additional $50,000 to $100,000 for each child.
The DIME Formula
The DIME formula is an easy way to find out an estimated amount of life insurance that you might need. This considers the primary bases, such as debts, income, mortgage, and education. The DIME formula is a great technique to use when answering the question: “How much life insurance do I need?”
Financial responsibility equation
There is another great way to answer your question of: “How much life insurance do I need” is by doing a very simple equation which can help you find out the estimated amount of life insurance you need. It is simple: Financial responsibilities you want to cover (subtracted by) the current assets that you have (equals) the amount of life insurance that you will need
What is the cost for a life insurance policy?
When thinking about the prices of policies one of the main question you might ask yourself is “How Much Life Insurance Do I Need in Canada?” Depending on your specific situation, the cost of your life insurance will vary. Obviously, if you have a higher rating, your monthly premium will be higher. However, if you have a standard or preferred rating, you’re in luck. The type of life insurance you want to purchase is another factor to take into account when calculating the cost of coverage. Term life insurance is currently the least expensive type of life insurance policy on the market; it is also capable of providing significant levels of coverage. Even though permanent life insurance is still very common and reasonably priced, not everyone may need it.
How much for a 10 year term?
Let’s take a look at the various prices for a term life insurance policy for a 40 year old male who is seeking a 10 year term, we will showcase the various coverage amounts depending on how much life insurance coverage you want. If you don’t see the chart for the coverage amount you want, click here to find our full article on all the prices for a 10 year term amount!
How much for a 20 year term?
Let’s take a look at the various prices for a term life insurance policy for a 40 year old male who is seeking a 20 year term, we will showcase the various prices depending on how much life insurance coverage you want. If you don’t see the chart for the coverage amount you want, click here to find our full article on all the prices for a 20 year term amount!
What are life insurance premiums?
Life insurance premiums are the regular payments made by the policyholder to the insurance company in exchange for the coverage and benefits provided by the life insurance policy. These premiums can be paid on a monthly, quarterly, semi-annual, or annual basis, depending on the policy terms.
Things that affect your life insurance premiums:
There are a number of things that are considered for by life insurance companies when anyone applies to get life insurance coverage.
To start with the basics, these are the general considerations that will affect your life insurance coverage if you chose to go with a fully underwritten life insurance policy:
- Smoking status
- Personal health history
There are a number of factors that also come into play such as:
Life insurance premiums can be expensive, especially depending on a person’s individual situation. Check out our blog on tips to secure affordable coverage to protect your loved ones.
What are life insurance ratings?
As part of the application process for life insurance, you will have to go through an underwriting process that will result in you getting a rating. In Canada, life insurance companies use several categories, often referred to as risk classes or underwriting ratings, to assess an individual’s insurability and determine life insurance premiums. The specific categories may vary slightly among different insurance providers, but they generally include the following:
- Preferred Plus: This category includes individuals who are in excellent health and have an exceptional risk profile. They typically receive the lowest premiums.
- Preferred: Individuals in good health and with a favorable risk profile may fall into this category, qualifying for slightly lower premiums compared to the standard class.
- Standard Plus: This category is for applicants with an average risk profile and relatively good health, but not as favorable as the preferred classes.
- Standard: The standard category includes individuals with average risk factors and general health conditions, resulting in standard premium rates.
- Substandard or Table Ratings: Individuals with higher-risk factors, such as certain health issues or risky habits, may be placed in this category. Substandard ratings come with higher premiums than the standard class, and the specific table number indicates the degree of additional charge.
Underwriting is the process an insurer uses to rate you into one of these categories and determine your individual risk factor. Every major life insurance company in Canada has its own underwriting guide, which essentially outlines the evaluation process for applicants.
The underwriting process usually includes a medical exam that looks at the applicant’s medical history as well as the medical history of the applicant’s immediate family. Depending on the amount of insurance, age, and initial investigations, underwriters may ask for a more thorough examination.
Even though the majority of medical exams are simple, it is possible that certain tests, such as blood and urine tests, an attending physician’s statement (APS), and other questionnaires, will need to be completed.
The applicant may receive a rating from the insurer, which has an impact on the policy premiums. The applicant is given a high risk level if the insurer finds that they are in poor health. But there is a fairly wide range that is regarded as normal. The applicant might be given a preferred (lower) rate if their health is better than average. Your eligibility for different insurance plans and the cost of your premiums are affected by these ratings.
How to save on life insurance
With the cost of living projected to get higher and higher in Canada, it is best to save your money any way you can. Life insurance is a great way to protect yourself, but costs money and requires you to pay monthly or annually. These payments obviously add up and must be entered into your budget. Luckily, there are numerous ways to save on your life insurance policy – in fact, you can get a life insurance policy that roughly costs the same as a cup of coffee a day! Here are a couple of things we recommend trying if you are looking to save money on your life insurance policy.
Get term life insurance
As stated earlier, when buying life insurance in Canada, term life insurance is on average much cheaper than permanent life insurance, simplified insurance and guaranteed issue insurance. There are awesome term life insurance products in plenty of different Canadian life insurance companies and all of these have really competitive and affordable premiums if you have a standard or preferred rating. Check out our list of the best insurance companies in Canada!
Buy life insurance when you’re younger
The younger you are, the better your rating is, thus the cheaper your premiums will be. Age plays a major role in the underwriting process when applying for life insurance. This being said, if you get life insurance coverage at a younger age you will be paying a dramatically lower rate than if you look for life insurance at an older age.
Pay for your premiums annually
Paying your premiums month to month might be easy, but some insurance companies offer great deals to those who pay annually. Some life insurance companies offer discounts as large as 10% off if you opt to pay annually instead of month to month.
Work with a life insurance broker
When buying life insurance in Canada, you should really think about working with a life insurance broker! At Protect Your Wealth we offer a completely free life insurance brokerage service. We have free consultations and you don’t pay us at all in the entire process of purchasing insurance. We make getting life insurance an easy process and we are experts in the field. We can showcase the multiple different rates offered by multiple different life insurance companies and then narrow down what is right for you. Purchasing life insurance is a massive decision, make sure that you are working with a professional.
Frequently Asked Questions (FAQs) about life insurance coverage
Term life or permanent life insurance policies do not cover disability by default. You can add disability riders to many insurance policies to cover circumstances where you are injured or ill and no longer able to earn an income.
You should look to have enough coverage to meet your living expenses, which include food, hydro, rent, transportation, taxes, and your rent/mortgage. For some people, this means at least 60% of your regular pre-tax income, but for those who don’t have children or who have paid off their mortgage may only need 40% to 50%.
Term life insurance is a type of life insurance that pays out to your beneficiaries if you die during the term of your policy. You can specify how long your term policy will last. Insurance companies provide term life insurance for Canadians and those legally residing in Canada for 10, 15, 20, 25 or 30 years. Once the term expires, you will be able to renew your policy but there will be an increase in the premiums you pay. For example, if you purchase a 10-year term life insurance policy and you die during those ten years, the people you name as your beneficiaries will receive a tax-free payment (also called a death benefit).
Permanent life insurance is also known as whole life insurance because it covers you for the rest of your life. It also provides your beneficiaries with a tax-free payment after your death. Some plans have the ability to accumulate cash value over time. Permanent insurance costs are typically guaranteed not to rise from the time the policy is purchased. Furthermore, some permanent insurance plans allow you to pay for a limited period of time and then never again. Other types of permanent life insurance to consider include universal life and participating life.
These plans don’t ask any questions and don’t require any medical exams. Guaranteed issue insurance is intended for people with serious health problems or who are older and do not qualify for underwritten or simplified insurance. Many insurers will also offer a 24-month deferral period for guaranteed life acceptance insurance. Because it is also a type of permanent life insurance, guaranteed issue insurance coverage generally has a maximum of $50,000, with some insurers covering less, and has the highest premium of the three.
Simplified life insurance is offered in permanent life and term life insurance forms. Medical exam is not required for simplified issue insurance policies, but you must answer certain health-related questions as part of your application. In return for no medical exam, premiums tend to be higher than traditional insurance. The number of questions asked varies by insurer and also by whether or not the policy is deferred. Simplified issue insurance is typically used for term life insurance products and is an option for those who want faster approval or do not want to take a medical exam. There are less coverage amounts and there are also higher monthly premiums with simplified plans.
There are a handful of things to consider when you purchase life insurance:
- Life insurance term
- Life insurance benefits, or additional riders
- Health conditions which are pre-existing or you are susceptible to based on family medical history
- Smoking status (smoker or non-smoker)
- Your age
- Children’s or dependent’s age
- Spouse’s age
- Occupation risks
- Existing loans and mortgages
Find a solution for what you’re looking for
When you ask yourself: “How Much Life Insurance Do I Need in Canada” just know that Protect Your Wealth will help you identify and secure the right life insurance coverage you need to create financial stability and protect your family and assets
To schedule a consultation about your income protection goals, or if you have any questions about life insurance in Alberta, B.C., or Ontario, please 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 Alberta, B.C., or Ontario, including areas such as Edmonton, Guelph, Mississauga, and Kelowna.