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Determining Your Life Insurance Needs

on Thursday, 23 July 2015. Posted in Blog, Life Insurance

If you have dependents or sizable debts outweighing your assets, you can buy adequate life insurance to cover those expenses after you’re gone. To discover the amount of life insurance you need, consider a combination of factors. Include concerns like your debt total, income replacement amount, and future financial obligations. Then start Alliance Financial’s free life insurance quote online to get the best rates from three of Canada’s top life insurers.

Influential Factors

Before choosing your life insurance policy’s face value or lump sum it will pay your beneficiaries when you die, you should establish a dollar amount that will allow your dependents to live comfortably without you. To achieve that goal, consider basing your policy’s payout value on these typical variables:

Debt total: Decide how much you need to pay off all your debts including mortgages, car loans, credit cards, other loans, etc. in full. If your mortgage is $200,000 and your car loan is $4000, your policy needs to be a minimum of $204,000 to settle those debts.

Income replacement amount: When your family has relied on your earned income to sustain its lifestyle, it becomes a major factor of your policy’s size. As the sole provider making $40,000 annually, for example, you’ll need a payout that’s high enough to replenish your income. Bump it up a little to account for inflation. Assume that your lump sum has an 8-percent return. A $500,000 policy would provide an even income replacement. Adding your annual earnings back into your policy is a good way to keep up with inflation. That brings you to $540,000. Add that amount to your debt total, and you’re at $744,000.

Future financial obligations: Estimate costs of your children’s college expenses or spouse’s move closer to family after you’re gone. When you add $80,000 to your $744,000 balance, you’ll need a policy with an $824,000 face value.

Your final expenses: You also may want to add final expenses including funeral costs and any estate taxes into your policy so your survivors will be able to pay for everything associated with your death. Assuming that $10,000 will be sufficient, raise your policy amount up to $834,000.

Adjustments: If your total is too high to afford, try these recalculating tips. Without your personal expenses like food, car, medical bills, clothing, and entertainment, your survivors might not need a replacement of your entire income. Figure what percentage of your earnings covers your individual outlays and deduct that amount from your total.

For 20 percent, subtract $166,800 to get a new face value of $667,200. Life insurance through your employer also may reduce your needs. If it’s worth $20,000, you can lower your final policy value to $647,200.

Insuring others: Cover family members only if their deaths would mean financial losses for you. While losing children would be devastating emotionally, they don’t represent monetary losses because raising kids costs money. But the passing of spouse who brings in an income would create emotional and monetary shortages. For that case, repeat the above income replacement formula.

Figure your spouse’s annual earnings at 8-percent plus inflation to determine his or her policy’s amount. Do the same for business partners if you share financial responsibilities such as mortgages on co-owned properties.

Policy Types

Alliance Financial’s online insurance offerings meet various needs:

To get fixed-length coverage, choose level term life.  This low-cost policy carries a fixed interval. Base your term on a specific timeframe or your age.

For lifelong security, select whole life. While covering your entire lifespan, this plan also accumulates cash value. Options include electing to end your policy at age 65 and choosing how long you want to pay premiums.

When financial planning is your main goal, consider universal life. You can combine the security that whole life offers with the ability to invest extra funds. Benefits include being able to vary your premium amounts while controlling your investment choices.

To set your own duration, pick Term 100. Just keep paying monthly premiums to get coverage for life. Choose between fixed-premium and variable payments. Your policy also can build up cash value.

Other Options

If the above categories don’t meet your requirements, you may need help beyond an instant Internet quote. Call 1-866-330-TERM (8376) to reach Alliance Financial. An insurance broker will offer you more options from Toronto life insurance companies that fit your unique circumstances.

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