In the accounting world we refer to insurance as a form of risk management.
For the average Canadian, life insurance protects those who rely on your pay cheque: If you die unexpectedly the life insurance will protect your family and dependent by providing replacement income. Think of it as the ultimate emergency fund that covers your income stream when you can’t.
Who Needs Life insurance?
If you were to die tomorrow what is the impact to your family? Do you have enough savings to cover your funeral expenses and, put your kids through college? Does your family rely on your pay check to cover their basic living needs? Will your wife and children have a replacement income stream to ensure they live the lifestyle they were used to when you were alive? If you answered no to these questions you need life insurance.
How Much Coverage Do I Need?
When considering how much insurance you will need you need to consider the questions above: How much do I have saved right now? How much is required for my family to maintain their lifestyle? What will my children’s education cost? Your savings less your anticipated family needs is essentially the amount of insurance you require. Calculating the need is more complicated than it appears and the services of a life insurance agent may be necessary to help you find out the exact amount, but the policy provides piece of mind that everything is financially taken care of.
What Kind Of Insurance Do I Need?
There are a variety of life insurance policies available and features that can be applied to them but essentially there is term life insurance, which is life insurance and nothing more and whole life insurance that includes both a life insurance and a long term savings plan. In most cases the whole life policies are not worth their cost because the additional premium attached could be invested for greater premiums. Therefore,term life insurance is the better choice for most people.
Why Term Life Insurance?
Term life insurance is simple to understand: You pay a premium and you know the benefit. There is no need to understand the cash surrender value of the policy.
Term life insurance polices are priced to the same criteria which makes comparison shopping easy.
Investment and savings available on whole life policies are limited in most cases and you would have greater investment flexibility placing these funds in investments yourself.
Finally, term life insurance policies allow you to renew without a medical exam and convert the policy to a whole life type policy should the need arise.