How Much Life insurance do I need?
To analyze your need you must consider the reasons for buying life insurance. The main reasons are:
- Replace your income for your family
- Pay debts
- Pay for final expenses
Some other reasons may be:
- Future education for children
- Leave extra money to loved ones
- Leave money to a charity
- Estate protection
To establish the amount you need to replace your income, the accepted formula is to take your annual income X 10, minus 25%. The plan here is to leave behind enough money for your loved ones to invest so that at a 10% return they could receive the same income as though you were still able to provide for them. The less 25% is because expenses should drop by about 25% because you are no longer a consumer. Add to this “income replacement”, an amount to cover your final expenses and pay your debts, and you have a rough total of your insurance needs. If you are concerned about the other potential reasons, it is quite simple to add an amount as a “leave behind lump sum” over and above what you might consider a “present need” to cover the other things that you wish to provide for. Now, here we are dealing with basic life insurance needs. There is an area of coverage which is much more complicated called “estate protection”.
This is where you have accumulated a fair amount of assets or “wealth” and you wish to use life insurance to maintain the value of your estate on your death, especially in regard to taxes. We are not going to deal specifically with that here. We are going to stick to the basics, which really covers the needs of 90% of Canadians. We have supplied a form that is intended to help you work out your life insurance needs in a very simple manner. Remember, it does not have to be complicated to be effective. This method will suffice for most people. Before going on, you should try to establish your life insurance needs. Calculating your needs is simple.
We help you calculate how much Life Insurance you’ll need based on a financial needs analysis. Feel free to take our online assessment by visiting this link. Or download our financial needs analysis PDF. (link to CI Financial Needs Analysys.pdf) Be sure to schedule your complementary financial needs evaluation with us today.