Between the chattering of shady get-rich-quick MLM schemes, risky cryptocurrency ventures, the more reliable index funds, and the less reliable stock market, it’s hard to make sense of where to put your money.
Now, I know what you’re (skeptically) thinking here, “OK, Mr. Insurance guy. Go on and tell me to buy life insurance.” Well, you’re wrong! Haha! Life insurance plans are not suitable for everyone. That’s right. Canadians are pulling record debt levels, and at a certain point, the cost of insurance begins to outweigh the protection it offers.
BUT, there’s a caveat to the sentiment that you’re better off paying off all your debt before insuring your life. I mean, it’s great if you are able to get your mortgage down to a $150,000 remainder, but could your dependents realistically cover that final fee post-mortem? So yes, we get to the eponymous question you’re bound to ask at some point in life, “How much life insurance do I need?”
you are an individual, and need an individualized plan. Beware any advisor that tries to tell you what is right without demonstrating how it balances these life factors.
That’s where Tyson comes in: your friendly neighbourhood insurance broker
Navigating the complexities of the tangled web that is financial planning takes expertise — let’s be honest here, you need somebody with insurance chops to get an effective plan.
When it comes down to existing coverage, many people will say, “I already have life insurance!” But how much coverage do you actually have? Is it enough to support your family and cover debts? It’s a big question that needs to be asked, especially when most benefits packages barely have enough coverage to meet one year’s salary.
OK, I get it, so how much insurance should I actually have?
The general rule of thumb is 7-10x your annual salary. That is the simplest answer to “how much life insurance do I need?”, but it does little to explain your options and how they affect the plan you decide to go with. There’s something of an order of operations here that help us to understand your position as an individual, and from there we can make recommendations.
What’s your income?
This is going to really hone in on what makes sense for you. Income is generally the dominant factor that affects your expenses and, ultimately, how much coverage you need to continue meeting those costs. We can also lump in expenses in this category. The Government of Canada offers a handy tool that will help you assess what dollar amount you should have coverage for in case of the worst. That’s only part of the puzzle though.
Are you carrying debt?
This isn’t an “expense” per say, given that your debt can, in some ways, also be an asset. Mortgages for instance. So this is separate from income/expenses for the same reasons your spouse would be mad if you came home with cream when they asked for milk. Cream isn’t milk. There’s a lot more fat.
Do you have dependents? What are their goals?
Children cost big bucks. That’s just a fact. Especially when we factor in post-secondary. Have you started an RESP? Do they already have alternative funding guaranteed? It’s best to err on the side of caution here.
How’s your health?
This is more of a restraint in terms of which type of coverage you go for. Whole life insurance can be a beautiful thing, especially for an individual with a high number of assets and investments, but there’s a point of diminishing returns that often comes as a result of poor health conditions or underlying circumstances. Don’t worry though, we’re not going to start digging your grave after taking a look at your medical history.
There’s your crash course in life insurance planning!
We hope that leaves you with some food for thought, and you stop asking yourself “how much life insurance do I need..?”. Ideally you’re not overwhelmed, because the reality is that you shouldn’t actually have to deal with any of this. That’s our job. And we’ve spent decades getting pretty dang good at it. So take a load off and call Tyson. He’ll get you up to speed and set your heart at ease that your dependents are well looked after long into the future. See you next time!