Different stages in life can bring about big changes. In the last 3 years, I got married, bought a home, and had a child. It’s a lot to balance and I’m more depended on than ever. These events lead me to reevaluate my insurance needs, specifically life insurance. I don’t want my family to ever be in a bad place financially because something happened to me. Below, I discuss the most commonly asked questions I get from clients about life insurance and take a look at the process I went through to determine the best coverage for me.
Why do I need Life Insurance?
People in your life rely on you. If you die without life insurance, it can have devastating financial consequences. It might seem obvious but if you are no longer working, you are no longer bringing in an income. You do not want your loved ones to experience financial hardship as a result of your death. Life insurance is essential to the Risk Management component of your financial plan.
How much Life Insurance do I need?
It is important to determine your personal life insurance needs because every situation is unique. How many years of your income would your partner or family need if you died today? How much debt (mortgage, credit card, vehicle, etc.) do you have? Are there any family goals (education, career, recreation, travel, etc.) that need protection? While discussing ‘what ifs’ surrounding death is uncomfortable, these questions must be considered when determining the appropriate life insurance coverage for you.
How do I calculate my life insurance needs?
Number of years x Income + Total debt + Other considerations = Life insurance amount
As you calculate your life insurance needs, I recommend building in a minimum of 10 years of income replacement. For families, the age of your children will have a large impact on determining the right number of years. Parents with young children should consider more than 10 years of income replacement. You want those who rely on your income to be able to maintain their quality of life even though you are gone.
How does my debt affect my life insurance?
I recommend that your life insurance covers the entirety of your debt. Even though you pass away, your debt is still here. You do not want your family to have to sell your home because they can no longer afford it. Your credit card balance can be challenging to pay down with 2 incomes, let alone with one. Vehicle and personal loans should be included as well.
Do you encourage your children to attend college or university? Do you or your spouse have career ambitions that require time, effort, and money? Do you want to keep the family cottage? Do you still want to go on that dream vacation you have always talked about? You do not want your loved ones to give up on or lose the opportunity to achieve their goals because of the death of a loved one
How do I apply for Life Insurance?
A trusted financial advisor can assist you with submitting your life insurance application. The advisor will first walk you through a needs analysis to determine the right life insurance coverage for you. Once that coverage is determined, you will look at prices. When you are ready to proceed, the advisor will input your information into the application and submit it to the insurance company.
After your application has been submitted, a process called ‘Underwriting’ is initiated. Underwriting is a review of your medical history to determine your eligibility for the life insurance you have applied for. This information is usually collected through a telephone interview, but it is also common for the insurance company to send a nurse to visit you in-person. Underwriting requirements vary depending on your age and how much life insurance you have applied for.
When should I apply for Life Insurance?
If there is anyone in your life that would suffer financially because you died, then the time to apply for life insurance is now. People often use major life events (marriage, birth of a child, buying a home, etc.) as a prompt to get life insurance. If you already have a partner, a child or children, or a mortgage, then you should begin the life insurance application process immediately as you are currently in a position of serious risk. Being a provider is a significant responsibility so do the right thing and make sure your loved ones will be looked after if anything ever happened to you.
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