Getting life insurance seems logical and natural to most of us. But are we doing it right? Often we assess the coverage that our loved ones will get somewhat blindly, because we don’t really know what the future holds.
Although it is difficult, if not impossible, to project ourselves into the future and therefore accurately determine the amount of protection our family will need in the event of our death, there is a reliable solution to determine it. And we’re not talking here about rules of thumb like the one that requires us to multiply our annual income by ten!
Nathalie Martelfinancial security advisor for Lawyers Financial, recommends making this calculation based on your real needs.
“The appropriate insurance coverage varies depending on the circumstances,” she explains. Several factors, such as the tax obligations that need to be met after the death, as well as the lifestyle you want to maintain for your family afterwards, need to be considered before taking action. »
Here are the questions you need to ask yourself to make a concrete assessment of your needs when you want to take out life insurance.
1. What cash should you plan for?
A needs-based assessment includes a first component, namely liquidity. What do we mean by that? Cash needs may include funeral expenses, probate fees, tax obligations, legal fees, loan payments, mortgage payments, establishing an emergency fund or funding a student fund for the benefit of minor children.
Some of these fees may be permanent or temporary. Depending on the case, they can also be spread over a number of x years. Funeral expenses will be incurred once, but expenses for children’s education and a mortgage can and should be planned over a longer period. As for an auxiliary fund, ideally it should be permanent.
It can therefore be advantageous to take out permanent life insurance for a certain amount to cover all these liquidity needs once they are listed.
2. What income should be given to loved ones?
In order to maintain his family’s lifestyle after his death, it is also necessary to consider the income that a life insurance can provide them. Income needs take into account the family’s current annual income, as well as the percentage of that same income needed to maintain their lifestyle.
For example, once the cash needs are met, it is possible that his or her spouse will need 50% of that income as long as the children are still supported by him, and then 30%.
Income needs can therefore be established in the medium and long term. And inflation in all this? This must indeed be taken into account, because the return is not always equal. Reasonable additional coverage can therefore alleviate this potential problem.
3. What funds do we already have?
In addition to our annual work-related income (personal and family), many of us also have insurance, investments and miscellaneous income. This can be savings, other insurances we have or our employer has bought for us, an annuity or various public benefits. Again, every scenario is different.
It is therefore also necessary to integrate these amounts, temporary or permanent, into its calculations in order to adequately determine the amount of the ideal life insurance coverage.
Life insurance according to your needs
Once all the cash and income requirements as well as the sum of the funds are determined, the time has come to choose the best possible life insurance option. And there is no shortage of them on the market!
Thanks to its not-for-profit status, Lawyers Financial offers life insurance among the five most affordable in the Canadian market in almost every age category. Being a member of Financière therefore allows you, up to the age of 80, to benefit from 5- or 20-year life insurance policies at an excellent price/quality ratio, as well as expert advice and not stakeholders, as Financial’s objective is not profitability.
Good to know !