You love your family far too much to leave them high and dry if you die unexpectedly. So you know that you need to buy life insurance to protect them financially.
But here’s the million dollar question now: how much coverage should you buy?
In this article, we explain who should buy life insurance and how much life insurance you need.
Let’s dive in!
Who needs life insurance?
To understand who needs life insurance in the first place, we need to talk about what life insurance is.
Life insurance protects the people who depend on you financially. These might be your spouse, kids, or aging parents (but hopefully not your frenemy at work).
So in short, if you have someone who’s financially dependent on you, it’s a smart idea to get insurance. This way, if you die and your income disappears, your loved ones can continue to cover their expenses and maintain their standard of living. Your spouse won’t have to sell the family home to repay the mortgage. And your kids won’t have to work three jobs each just to pay their way through university.
Who doesn’t need life insurance?
Although most Canadians need life insurance, some lucky souls don’t. For example, you probably don’t need life insurance if you’re single and don’t have any kids. After all, no one depends on your income, so you don’t have anyone who needs to be protected with life insurance.
You also probably don’t need life insurance if you’re no longer earning an income or have enough savings to pay for the expenses that insurance would cover.
But what if I’m planning to have a family?
It’s easy for us to say that if you’re currently single and don’t have kids, you don’t need life insurance right now.
But what if you’re planning to get married or have kids one day in the hopefully not-so-distant future? What if you develop an illness before then that makes it harder or more expensive to get coverage? Should you buy a policy now just in case?
We would say “no." Why?
Because if you don’t need coverage today, why pad your insurer’s pockets with insurance premiums that aren’t protecting anyone (other than that hypothetical spouse or child of yours)? You’d be better off putting your money toward an emergency fund or retirement savings.
Of course, if it’s more important to you to avoid the risk that your health could decline before you buy insurance, getting coverage now might still be the right choice for you. But for everyone else, we suggest saving your money and revisiting life insurance when you get married or have a baby.
What’s the right amount of life insurance coverage?
If you buy a term life insurance policy, you can choose a coverage amount that’s anywhere between $20,000 and $10 million. Most people in their 30s and 40s buy policies in the $250,000 to $1 million range.
However, the right amount of coverage for you depends on your family’s needs. Specifically, when choosing a coverage amount, you want to think of your family’s current and future expenses alongside your income and assets.
When considering your expenses, be sure to factor in expenses that might not seem like expenses on the surface. For example, if your spouse is a stay-at-home parent, include the expenses you’d have if that parent died and your family had to pay someone to do what they did for free (all that childcare and cleaning). If nothing else, it’ll help you appreciate everything your spouse currently does for your family without pay!
Want more guidance on where to start?
Take PolicyMe’s online life insurance checkup. In just 5 minutes, it’ll help you identify the coverage amount and policy length you need to protect your family. Complete the checkup for free here.
Don’t forget about personal factors!
When identifying the right coverage amount for your family, you might focus mostly on your financial resources and expenses. But it’s important to think of some key personal factors too:
Health and age
You’ll want to factor your age and health into the equation when deciding how much coverage to buy and how long you’ll need it for. For example, if you buy coverage in your late 40s, you’ll probably need less of it than if you had bought coverage in your early 30s. Why? Because, fingers crossed, you’ll likely have less debt and fewer dependents.
Of course, this doesn’t mean that you should put off buying coverage until you’re older. If you need to buy coverage at a younger age, which most people do, you’ll need more of it. But remember that if you’re younger when you apply for a policy, you’ll also get a lower rate for it.
You’ll pay more for life insurance if you want a larger coverage amount or longer policy length. But you’ll need to make sure that you can afford the monthly premiums for the amount of coverage you want
Because if you don’t pay your premiums, your policy will lapse. And then it won’t be of any use to your family.
If you can’t afford the amount of coverage you need right now, it’s always better to buy a smaller policy than to put off buying life insurance altogether. After all, giving your family a smaller financial safety net is a whole lot better than leaving them with no safety net at all.