Life insurance may be one of the most important decisions you will ever make.
Life insurance is a decision some people put off until something happens to them that hits close to home. That’s not surprising considering we all have a built in mechanism that avoids us thinking about death. But that kind of procrastination can be devastating to your family or your business.
When it comes to you and life insurance, there are a few basic questions to ask yourself:
Do you need life insurance?
The quick and easy answer to this question is if someone will suffer financially when you die – that could mean family, aging parents, business partner or employees, you need life insurance. Sometimes you might be inclined to say “oh they’ll be ok” and maybe that’s true but it’s important to remember that you don’t get a chance to change your mind once you’re gone. You need to face reality while you can do something about it.
How much life insurance do you need?
How much life insurance should you have? – some experts recommend a rule of thumb that runs anywhere from 5 to 20 times your annual income – that can be a confusing way to go about it for some. The proper way you determine how much is through a financial needs analysis. You gather all your personal financial information and estimate what your family members would need after your gone to meet their financial obligations.
Calculate three areas of expenses:
1. Immediate expenses–death, funeral, taxes, probate fees, outstanding debts.
2. Ongoing expenses – money for your family to live on – everyday living like food, clothing, transportation, travel, mortgage, etc.
3. Future expenses – money to fund your children’s education and your spouse’s retirement.
After you have figured out your family’s needs – tally up all the resources your family can draw upon to meet those needs – like your current income, savings, and any additional life insurance. Don’t include any investment value to reduce your required amount of insurance. Your investments usually have a specific purpose. RRSPs are for retirement, not death, and there are tax consequences of using RRSPs to pay for expenses upon death. The difference between your family’s needs and the resources in place is your need for additional life insurance.
Book your free and private life insurance consultation today.
