Insurance, Investments and Group Benefits

Simple. Fast. Easy.TM

How much life insurance do I need?

Helpful Tips, Insurance

Posted by Allison Barton

Jan 31, 2014 2:09:27 PM

Family Tobaggoning

The question is not really how much life insurance you need, it is how much money your family will need after you are gone. 

Three in four Canadian households with children under 18 are underinsured (LIMRA Study, 2013)

Everyone’s financial circumstances and priorities are different but here are some questions to help you focus: 

• How much money will your family need to meet immediate expenses such as funeral expenses, legal fees and outstanding debts and mortgage balances?

• How much money will your family need to maintain their standard of living over perhaps several years? This could include everyday living expenses, money for a child’s post secondary education, or your spouse’s retirement.

Average insured Canadian only has coverage equal to 3.6 times his or her annual income. When you consider all the financial obligations that life insurance proceeds need to fund and how long the money will be needed, you begin to realize that your true need for insurance coverage is often 10X your gross annual income, sometimes more. (LIMRA, 2005)

The key to determining how much life insurance you require is really taking some time to do some research. Here are some steps to help with this evaluation:

1) Gather all of your personal financial information and estimate what each of your family members would need to meet current and future obligations. This would include items such as funeral expenses, mortgage payments, car loans, credit card debt, education expenses, and replacement of your income.

2) Tally up all of the resources that your family members could rely on to support themselves in the event that you pass away. Are there any savings or another income to rely on?

3) Determine what the difference is between point #1 (obligations) and point # 2 (resources).

Current and future financial obligations - Existing resources (including survivors earnings, savings and investments and life insurance that you already own) = Insurance needed

This research will be the starting point for determining how much life insurance you actually need. After that, it is time to get further guidance and assistance from a qualified financial advisor. They will be able to tweak your research even further to reflect your personal circumstances, and from there come up with a customized financial plan to provide the necessary security for you and your family.