Everyone has different reasons for wanting life insurance. However, at its core, it provides financial security for you and your loved ones. Learn about its importance and how much you should have.
Why Do You Need Life Insurance?
The most significant reason for having life insurance is to provide your family with the financial resources they depend on from you in the event of your passing. The death benefit is an amount you agree on with your insurance company, providing your dependents peace of mind. Your beneficiaries receive the agreed amount – known as the payout – immediately upon your death.
Common for buying life insurance include:
1. Failsafe Financial Protection
Your beneficiaries know they can depend on this financial safety net since they receive a guaranteed lump sum if you have paid all the premiums and have no outstanding loans. Life insurance provides essential income protection they can count on.
2. It Replaces Your Income
Your income is essential for your family because it helps cover household expenses and maintain their lifestyle. If this suddenly disappears, the payout immediately replaces it, allowing them to meet the costs of:
- Mortgage
- Childcare, health care, living expenses, etc.
- Tuition expenses
- Household debt
- Burial expenses
- Preserve the family business
Want to find out what your life insurance rate is?
Find the best rates from top life insurance companies in Canada!
3. They Receive a Tax-Free Benefit
Your beneficiaries will enjoy the legacy they receive from your life insurance policy tax-free since these are mostly not subject to income tax.
4. Cash Value Growth
With a permanent life insurance policy, your premiums help build a guaranteed and tax-deferred tax value. As it grows, this can help you with various future financial goals. These include supplementing your retirement income, paying off a mortgage, creating an emergency fund to pay unexpected investments, or paying a child’s or grandchild’s tuition.
5. Customize Your Policy
Term policies allow you to choose the amount and years you want the financial protection. Permanent life policies also allow you to tailor them to your individual needs by adding more protection without further underwriting, paying premiums if you become disabled, paying for a chronic illness, etc.
Utilizing the First Ever Virtual Insurance Advisor GetCovered
If you are now convinced that you need life insurance to protect yourself and your family, then the next step will be to decide the type and amount of coverage you need to purchase. You may read through our guide below and learn from all the other articles we have published or you may just use GetCovered, the first-ever virtual insurance advisor.
GetCovered, available on the apple store and google play, is able to provide recommendations for life, critical illness, and disability insurance. GetCovered understands your needs based on your age, goals, objectives, liabilities, and other factors. Once you provide answers to the questions, you will receive the recommendation for the coverage type, and amount, and showcase the policy features needed for your coverage.
GetCovered is able to display quotes and prices from all reliable insurance companies across Canada and provides you with the ability to sort through the quotes based on price, AM best rating, and GetCovered’s rating in order to help you make the best choice possible.
How Much Insurance Coverage Should You Have?
Research the difference between term and permanent life insurance before determining your needs. A term policy is usually the best option when you have financial obligations for the next ten years. On the other hand, a lifelong dependent like a child with special needs makes permanent life insurance a necessity.
Finally, determine a realistic death benefit that provides adequate protection for your family with premiums you can afford.
Calculating Your Life Insurance Needs
According to insurance companies and expert insurance brokers, a reasonable amount for life insurance is six to ten times your annual salary. For example, for a yearly salary of $50,000, you should consider coverage of $500,000 if times by ten. Some insurers suggest adding $100,000 per child to the amount.
Another suggestion is to multiply your annual salary by the years left until retirement. For example, if you are 40 and make $20,000 a year, you multiply the 25 years left for retirement by 25 years × $20,000, and you need $500,000 coverage.
Another method is the standard-of-living or human life value (HLV) approach. First, you need to work out the money survivors would need to maintain their standard of living and multiply it by 20. They should make a 5% withdrawal from the death benefit annually while investing the death benefit principal to earn interest.
Finally, if you want to find the minimal amount required to cover your family’s expenses, the DIME method will help replace your income until your children reach the age of 18. You add your existing death to your annual income times the number of dependents, the remaining balance of your mortgage, and the estimated future education costs.
Generally, all the above methods are accurate but multiplying by ten or the number of years left to retirement is the most widely used.
Final Thoughts
Your life insurance needs can change as your family grows and later when children start leaving home. However, remember that it is easier to decrease coverage amounts than increase them, always depending on the insurance company’s policy. Term life insurance makes it easier to meet your family’s changing needs. Start your research with Get Covered if you want permanent or term life insurance. Besides finding the right product from an array of Canadian insurers, you can get a quick quote based on the life coverage you want. Remember, the best life insurance coverage is the one you can afford while providing your family with adequate protection when needed most.