5 Easy Tips To Find Out How Much Life Insurance You Need

One of the most important things to consider when purchasing a life insurance policy is to think about the amount of coverage you want to have in case you pass away. This coverage can be used for many purposes, and is commonly used to help with funeral costs, outstanding debts, and supplementing income in case the insured passes away. Calculating how much life insurance coverage you need can help ensure that your family is financially secure in the event of your death, and can provide peace of mind knowing that they will be taken care of. Here are five easy tips to find out how much life insurance you need.

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Why Calculate How Much Coverage I Need?

Calculating how much life insurance coverage you need is important because it can help ensure that your family is financially secure in the event of your death. Life insurance can provide financial protection for your family by covering expenses such as funeral costs, outstanding debts, future expenses and the cost of living.

If you are the primary breadwinner for your family, your death could have a significant financial impact on their well-being. Life insurance can help replace your income and ensure that your family is able to maintain their current standard of living. It can also provide financial security for your children’s future, covering expenses such as post secondary education costs and living expenses.

In addition, life insurance can provide peace of mind knowing that your loved ones will be taken care of in the event of your unexpected death. It can give you the confidence to make financial plans for the future, knowing that your family will be protected.

Calculate your Debts and Future Expenses

Consider any outstanding debts, such as a mortgage or car loan, and the cost of future expenses, such as your children’s education. This will give an idea of how much money your family would immediately be helpful towards covering debts and expenses, typically you would want the coverage amount to be more than this total number.

To calculate your debts and future expenses, you can follow these steps:

  1. Make a list of your current debts: This should include any outstanding balances on mortgages, car loans, credit card balances, student loans, and any other debts that you have.
  2. Determine the total amount of your debts: Add up the outstanding balances of all your debts to determine the total amount that you owe.
  3. Estimate future expenses: Consider any expenses that you may have in the future, such as the cost of your children’s education, retirement expenses, and any anticipated major purchases.
  4. Add up the total amount of your debts and future expenses to determine the total amount that you will need to cover with life insurance.

It is a good idea to review your debts and future expenses periodically to ensure that your life insurance coverage is sufficient to meet your needs.

Consider Financial Impact on Loved Ones

Determine the financial impact on your family: Consider the financial impact that your death would have on your family’s income, including the loss of your contributions to household expenses and any potential changes in your family’s lifestyle.

Try these steps to get an idea of the financial impact on your family in the event of your death:

  • Calculate your current income: Determine the amount of money that you currently contribute to your household expenses and any other financial obligations.
  • Estimate your family’s future income needs: Consider your family’s current and future expenses, including the cost of living, education costs, and any anticipated major purchases

Factor in Family’s Needs

Take into account the current and future needs of your family, including their lifestyle and any special needs they may have. Take into account things like:

  • Current lifestyle: Consider your family’s current standard of living, including their expenses for housing, food, clothing, transportation, and other necessities.
  • Future expenses: Think about any anticipated major purchases or expenses that your family may have in the future, such as education costs, retirement expenses, or the cost of a new home.
  • Special needs: If anyone in your family has special needs, such as a disability or medical condition, consider the additional expenses that may be associated with caring for them.
  • Family structure: Take into account the size and structure of your family, including the number of dependents that you have and whether any family members may need financial support in the future.

It is important to consider the current and future needs of your family when determining the amount of life insurance coverage that you need to provide financial security for them in the event of your death.

Assess your Assets

Consider the value of your assets, such as savings and investments, and whether they would be sufficient to cover your family’s needs in the event of your death. To assess your assets, you should consider the following:

  • A list of your assets: This should include any savings, investments, real estate, and other valuable possessions that you own.
  • Determine the value of your assets: Estimate the current value of each of your assets, taking into account any outstanding debts or mortgages.
  • Consider the liquidity of your assets: Consider whether your assets can be easily converted to cash, as this will be important in the event that your family needs to access funds quickly.
  • Determine the potential income from your assets: Estimate the potential income that your assets could generate, such as dividends from investments or rental income from real estate.
  • Assess the potential of your assets to cover your family’s needs: Based on the value and potential income of your assets, consider whether they would be sufficient to cover your family’s needs in the event of your death.

Consider your Age and Health

It is important to consider your age and health when determining how much life insurance coverage you need because they can affect the cost and availability of life insurance. Generally, life insurance premiums increase with age because the older you are, the greater the risk of death. Therefore, it may be more cost-effective to purchase life insurance coverage at a younger age. Your health can also affect the cost and availability of life insurance. If you have pre-existing health conditions or engage in risky behaviors, you may be considered a higher risk to insure, which could result in higher premiums or the inability to obtain coverage.

Overall, considering your age and health can help you determine the amount of life insurance coverage that is appropriate for your situation, as well as the most cost-effective time to purchase coverage.

Frequently asked questions (FAQ)

Calculating how much life insurance you need is based on your family’s financial situation and specifically focusing on the financial responsibilities that you contribute to the family. If you were to pass away, the contributions that you wouldn’t be able to make anymore, you would want to cover. Two very common methods to calculate the amount of coverage you need are: the DIME formula and the ten times income formula. These two methods will give you a great understanding of how much life insurance coverage you may need to protect your family from financial insecurity.

  • The DIME Formula: Meant to remind you to consider any financial obligations you may have to your family in case you pass away, where DIME stands for Debt, Income,  Mortgage, and Education. DIME reminds you to consider any debts you may have, the loss of income in case you pass away, the mortgage that is left on the house, and postsecondary education costs that you may want to help contribute for your loved ones. 
  • Ten Times Income Formula: A common thing to do is to multiply your yearly income by 10 and that should be a great coverage amount to help with many costs especially if your income helped keep the family financially stable. Sometimes ten is more than enough depending on your finances so even multiplying your income by 5 or even 2 may be enough coverage for what you are looking for especially if you are budgeting.

In Canada, there are several types of life insurance available, including:

  • Term life insurance: This type of insurance provides coverage for a specific period of time, such as 10, 20, or 30 years. It is generally the most affordable type of life insurance, but it does not build cash value and the coverage ends when the term expires.
  • Permanent life insurance: This type of insurance provides coverage for the entirety of your life and may also include an investment component, such as a cash value component. Permanent life insurance is typically more expensive than term life insurance, but it provides lifelong protection and can be a good choice for those who want to leave a financial legacy for their loved ones.
  • No medical or guaranteed life insurance: A type of life insurance that does not require a medical examination or health questionnaire. This type of insurance is generally more expensive and provides a lower level of coverage than traditional life insurance, but it may be a good option for those who are unable to qualify for traditional coverage due to health issues or other reasons.
  • Group life insurance: This type of insurance is provided through an employer or other group and covers all members of the group. Group life insurance is often less expensive than individual life insurance and may be a good option for those who are unable to qualify for individual coverage.

Whether it is worth getting life insurance in Canada depends on your individual circumstances and financial needs. Life insurance can provide financial protection for your family in the event of your death by covering expenses such as funeral costs, outstanding debts, and the cost of living. If you are the primary breadwinner for your family or have significant financial responsibilities, life insurance can help ensure that your family is financially secure in the event of your death.

That being said, life insurance may not be necessary for everyone. If you have few financial responsibilities and your family would not be financially impacted by your death, you may not need life insurance. It is a good idea to consider your financial situation and determine whether life insurance is necessary for your family’s financial security. You may also want to consult with a financial advisor to help determine the appropriate amount of coverage for your situation.

If you are unable to qualify for the amount of life insurance coverage that you want, there are a few options that you can consider:

  • Shop around: It is a good idea to compare quotes from multiple insurance companies to find the best coverage at the most affordable price.
  • Consider alternative types of coverage: If you are unable to qualify for traditional life insurance, you may be able to obtain coverage through alternative options, such as guaranteed issue life insurance or accidental death insurance.
  • Improve your health: If you are unable to qualify for coverage due to health issues, you may be able to improve your chances of qualifying by making lifestyle changes to improve your health, such as quitting smoking or losing weight.
  • Consider a policy with exclusions: Some life insurance policies come with exclusions, which means that the policy will not cover certain causes of death. If you are unable to qualify for a traditional policy, you may be able to obtain coverage through a policy with exclusions.
  • Work with a life insurance advisor: life insurance advisors are well experienced in finding the policy that the client wants and needs to maximize financial security. Trying to do a lot of research for something that is a simple question for an advisor can save you both time and effort. At PolicyLife we can work with you to find the best life insurance policy that helps get you to the coverage you are looking for. Contact us today to start working with us at no additional cost.

Overall, if you are unable to qualify for the amount of life insurance coverage that you want, it is a good idea to explore your options and consider alternative types of coverage.

It is difficult to determine whether $50,000 in life insurance coverage is enough as it depends on your individual circumstances and financial needs. There are several factors to consider when determining how much life insurance coverage you need, including your debts and future expenses, the financial impact on your family in the event of your death, your family’s current and future needs, the value of your assets, and your age and health. 

If you have a small mortgage or few other debts and your family would not be financially impacted by your death, $50,000 in life insurance coverage may be sufficient. However, if you have significant financial responsibilities or your family would struggle financially without your income, $50,000 in coverage may not be enough.

This depends on your individual circumstances and financial needs. A great way to figure out if life insurance is a great option is to ask yourself if in the event that you pass away “Do you have any loved ones who would financially struggle after your passing?” and if you answered yes, then life insurance is meant to give financial stability to your loved ones in the event that you pass away – but, it depends on your current assets, lifestyle, financial situation and much more whether life insurance is worth it for you. A great way to find this out quickly is to contact a life insurance advisor, at PolicyLife we can help you figure out if life insurance is worth it after 50.

Finding Life Insurance with the Right Coverage

To find out how much life insurance coverage you need, consider your general financial responsibilities, and the responsibilities someone else would have to take on without a life insurance policy in case you pass away. You can also consult with a life insurance agent to help determine the appropriate amount of coverage for your situation, find you the best company that offers the best benefits, and be able to compare quotes from multiple companies at once for you. 

At PolicyLife we can work with you to help find a life insurance package that best suits your needs at no extra cost. PolicyLife thrives off of you having the best life insurance plan that you want to keep, so let us help you get there. Contact us today or try our online Quote Tool to start finding the life insurance policy for you from the top life insurance companies in Canada. PolicyLife lets you complete your entire application easily through our online services! PolicyLife serves clients all throughout Alberta (AB), British Columbia (BC), and Ontario (ON).