How Much Life Insurance Do You Need?


Several months ago, we were honoured to host
the Ottawa’s Women’s Business Network reception here at PWL. It was a lot of fun! Not only because of the festivities and the fundraising
but because you’d be hard-pressed to find a smarter, more engaging group of ladies to
hang out with … if I do say. When we invited this creative crowd to write
down their “No Dumb Questions” on our whiteboard, I was reminded of one financial
frustration that confounds almost everyone – even us business brainiacs: How much
life insurance do you need? In fact, according to my friend and colleague
Peter Harrison of HealthSource Insurance, many of the people he meets are unsure
about how much coverage they’ve got, and if the policy they already have is right for them. So today, let’s talk about life
insurance, in no uncertain terms. And if you want to insure you don’t miss
this and future No Dumb Questions, subscribe here, and click on the bell. What’s your favourite competitive sport? Football? (Go RedBlacks) Soccer? Whatever it is, they’ve got one thing in
common: They all call for a strong offence and a solid defence to stay
at the top of your game. The same can be said about your wealth. Sure, you want to get out there and score. That’s where the strong, proactive investment
strategy comes into play. But no matter how proactive you are with your
investments, life can throw us curveballs. If you’re not ready to respond to them with
an equally solid defence, they can sideline you entirely from the game. That’s what life and disability insurance are about. So today let’s get that life insurance off
the bench and get ready to run defence. I hope it helps to break the challenge down
into the two frequently asked questions: First, how much life insurance should you have? And second, what kind should you get? How much insurance is right for you can be
clarified by thinking about your family’s “needs” and “wants.” That is, what do you believe their “needs” are? And what type of lifestyle do you “want”
them to have if you were to pass away prematurely? For example, say you’re the family breadwinner
with two toddlers and a stay-at-home spouse. Your “needs” will probably be many! Should the unexpected occur, they need to
continue with their existing lifestyle – including food, clothing, shelter and ongoing spending
and saving of a regular household. So, your insurance should be enough to replace
that cash flow of normal monthly expenses over a number of years. You’d probably also plan to pay off any
outstanding debts – including your mortgage, credit card balance or even student loans. “Wants” are important too. You may not need to ensure your spouse can
still take your children on a vacation or become a future snowbird. You may not need to pay for your
kids’ higher education, weddings, or assist them with down payments on their homes. You also may not need to leave a generous
donation to your favourite cause. But you may really want to do some of these. Through the years, I’ve often collaborated
with Peter Harrison of HealthSource Insurance when coaching my clients on these sorts of choices. No matter what… Peter and I agree: The best time to get started
is when you’re young and you’re healthy. Not only are the costs lower, but your needs
are probably greater and your good health makes it easier to obtain. As Peter likes to say, “Life insurance may
be the only product that you have to buy when you don’t yet need it.” What he means is, once you age and your health
changes, the insurance company may not allow you to buy a policy. Or if you can, it may be much more expensive. This brings me to our next subject: What kind
of insurance should you get? There are two broad types of insurance:
term and permanent. Because term typically costs a lot less, people may mistakenly assume it’s the right solution every time. But just as a cheap hammer won’t replace
an expensive screwdriver, cost isn’t the only consideration here. Again, Peter has provided a helpful way to
wrap your head around the differences between them. He describes term insurance as covering the
costs only “if you die before a certain time.” Permanent insurance pays your beneficiaries
“when you die, no matter when that is.” For example, you may want term insurance if
you die while your debts are still high, your children are dependents, and your family will
need ongoing income for years to come. In effect, you are “renting” insurance,
in case you need to “create an estate” – or feather your nest, if you will – before
you’ve got enough feathers of your own. Once the kids are grown, if you no longer
need it, you can let that policy lapse. And because the insurance company knows very
few policies like this will actually result in a claim… the coverage is affordable. Now contrast that to permanent insurance,
which is typically used to fund certain preservation goals like paying off your final taxes, establishing
a family legacy or leaving a chunk to charity. This policy becomes part of your estate planning
and is a piece of equity…something you own as opposed to rent. Because the insurance company knows this type
of policy pays a claim eventually, it stands to reason the coverage is more expensive. But, it can have significantly more value
to you, as the payout is certain. The policy will be there for your
beneficiaries whenever you go. This can make permanent insurance an appropriate
tool to help you “preserve your estate,” so you can pass efficiently and effectively
along to your intended beneficiaries – – intact, for pennies on the dollar. By the way, permanent insurance can also be
invaluable if you’re a business owner. How does that work? I’ll pick off that question off in my next
“No Dumb Questions” segment. So what are your “No Dumb Questions”? Send them to me and we’ll
keep ’em coming back in turn. I hope you’ll subscribe to my channel so
you can keep on watching. I’m Nancy Graham and this is No Dumb Questions.

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Has this No Dumb Question helped you assess your life insurance needs? I'll be answering your questions right here!

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