What is life insurance?

A life insurance policy will help look after your loved ones once you are gone.

A basic life insurance policy often requires you to pay a monthly amount (or a “premium”) to the insurer over a set period of time and, in return, your named beneficiaries will receive a lump sum of money (a “death benefit”) when you pass away. Additional life insurance policy types may also offer additional benefits – like the option to withdraw funds from the value of your “death benefit” while you’re still alive, for example.

Do you need it?

Life insurance is an important part of a financial plan. Here are a few scenarios where having life insurance is a good idea:

People count on you

If you have a family, or someone who relies on you financially, life insurance may be vital. The policy may go a long way in ensuring that they can maintain their current standard of living once you are no longer able to provide for them.

You have outstanding debts

Your family may be on the hook for any debt you leave behind. A life insurance policy can cover these debts to prevent unnecessary worry.

You share a mortgage with someone

If you die your family or partner may not be able to continue paying the mortgage. A policy can help keep a roof over their head and give them options.

You have a business

The death of a business partner can lead to additional financial stress for the remaining partner. Having a life insurance policy can help provide necessary funds to avert a company crisis.

You want to cover some costs

A funeral can be extraordinarily expensive. If you have no dependents or outstanding financial obligations, you may want a policy to cover expenses to reduce stress on your loved ones.

Your company policy isn't enough

Your work benefits may include a life insurance policy, but the death benefit it provides may not be enough to cover your current situation. Supplementing this policy with another one may offer better overall protection.

You want to donate to charity

You may have a favourite charity that you would like to leave a large donation to after you’re gone. A life insurance policy is one way of doing this to create a lasting legacy.

How much coverage do I need?

We all have unique circumstances and will require different life insurance policy limits. To help determine how much coverage you may need, you can start by adding up these variables:

• Income: Your income will stop after you’re gone. Consider how many years of income you want to replace and multiply it by your annual take home salary.
• Debt: Add up all your outstanding loans.
• Mortgage: How much is owing on your mortgage? You may also want to cover ongoing home maintenance and repairs for a number of years.
• Funeral expenses: Calculate the amount you expect will be spent on your funeral and add in the costs of settling your estate.
• Children’s education: If you have children, you may want to leave them with enough money to cover their education. Consider these future costs and add this to your total.

Bottom line: The right life insurance policy should be able to cover all your financial obligations and allow for your loved ones to maintain their current lifestyle.

When is life insurance not necessary?

If you don’t have any debt or dependants and you have fewer large expenses, a life insurance policy may not be right for you right now. You also might not need it if you’re wealthy and have a large estate that you can leave to your loved ones. To find out if life insurance is right for you, contact your financial advisor or get in touch with a life insurance agent.