Most Canadians today, understand the need for life insurance. Standing in 2020, more than half of the Canadian population owns some type of life insurance. However, the number of underinsured cases are still very alarming.
Remember, life insurance is not something you purchase for yourself — you buy it for the benefit of others. Regarding how much life insurance you need, most people make erroneous decisions.
Honestly, no one can give a universal answer to the question – “How much life insurance do I need?” Everyone is unique and everyone has different requirements. It is therefore easy to see why coverage and rates vary from person to person.
The best decision would be to consult an experienced financial advisor regarding the amount of life insurance coverage you need based on your income and requirement. However, it is also true that one of the primary reasons behind being underinsured is failing to review the policy regularly.
Hence, people end up going for an insurance policy with inadequate coverage, thus, failing to sufficiently protect their loved ones or even fulfilling funeral expenses at times of deaths.
To help you get started on your journey towards financial future protection, let us take a quick look at the factors that can play a massive role in determining how much insurance you need and how much your premiums will cost.
What is the type of life insurance you are going for?
The price you pay depends on the type of life insurance you purchase. There are mainly two types of life insurance.
Term life insurance provides coverage for a particular term (usually between 10 and 30 years). Many people opt for a term life plan in their early 20s and early 30s when debts are high (e.g., mortgages), children are young, and annual income is low.
With a term life insurance policy, your beneficiaries only receive death benefits if you die within the specified term period.
On the other hand, permanent insurance covers for the entire life. Regardless of the date and time of the insured’s death, death benefits stay guaranteed to the beneficiaries.
Remember that term life insurance may not always be the right solution for you. You need to consider your personal requirements, your financial responsibilities, where you are in your life, and what you can afford before coming to a decision.
Permanent life insurance offers guaranteed lifetime protection. Young Canadians will find it more expensive than the term. But your premiums remain constant, so at some point in your life, it will cost you less to pay for your permanent life insurance than to purchase additional term insurance.
Besides term or permanent life insurance, there is universal life insurance that you may find more suitable to your financial requirements.
Mostly, it offers consumers a lifetime (or at least long-term) protection while at the same time providing tax-deferred savings. Some universal life insurances have premium payments that stay constant over time, some require payments that increase over time, and others combine the two. Payments made in excess of the cost of insurance can be invested and your savings will be held on a tax-deferred basis.
Know your financial obligations
Understanding your financial obligations is essential for determining the amount of coverage you need. Think about the tuition fees you pay for your children’s education, water and electricity bills, rent or mortgage payments, etc. All the expenses that you take care of each month that will stay even if you are no longer there. The total of these values (summed up yearly) will help you determine how much insurance you need.
Funerals do not come cheap. The average cost of a funeral can range from $ 5,000 to $ 10,000. Take this factor into account in your insurance coverage.
Your age is one of the most important determinants of the life insurance coverage you need, and it also dictates the amount of your premium. Older people are generally considered high risk by the insurer and therefore have to pay more in terms of premiums.
If you are a man, your premium would supposedly be a bit higher in comparison to women. Most insurance companies classify men at a higher risk than that of women.
Your state of health also determines the amount you need for insurance. If you have a chronic health problem, you may be classified as a high-risk customer by your insurer. You are therefore forced to pay more for your life insurance premium.
Note: Also consider the health of your dependents while factoring in the amount of your coverage.
Smokers usually pay higher premiums because they are considered to be of higher risk. However, this typically varies.
A general rule of thumb
As a thumb rule, you should be covered for at least 10 times that of your annual income, so if you earn $80,000, you should be having at least $800,000 in coverage. But then, as we said, the requirements vary from individuals to individuals, so giving a universal answer to “How much insurance do I need?” is simply not possible.
Need professional help? Find an insurance advisor in Mississauga, Toronto, Canada
Our expert insurance advisors can help you determine the appropriate coverage amount, considering a number of factors like your income, debts, net worth, existing plans, current health conditions, etc.
At Trust Life & Investments, we are all about providing affordable insurance options for our customers in Canada. We have over 30 years of experience providing expert insurance and investment advice for both businesses and individuals. Get in touch with our expert financial advisors to know more about the best and affordable Life Insurance Plans in Toronto and Mississauga.