The kind of insurance you purchase should always depend on your personal financial situation. Each case is unique and must be examined individually to assess the type and amount of insurance necessary.
3 reasons for buying life insurance
- To replace your income after you die.
Life insurance can provide for your survivors and help them maintain their standard of living and their assets, immediately and over the longer term.
- To pay your debts and cover the costs related to your death.
Life insurance can be used for funeral costs and to pay off any loans you may have.
- To cover estate costs.
Estate costs include such expenses as income tax for the year in which you die, or tax on capital gains for certain investments.
Assess your needs accurately
- Draw up a budget and determine your current standard of living.
- If you are part of a couple, determine how much each of you needs to contribute in order to maintain the same standard of living. A common mistake is insuring both spouses for the same amount, even though they do not make an equal financial contribution.
- Assess, as accurately as possible, how much the family would lose in the event of the death of each spouse. Keep in mind expenses that will disappear and others that will be added.
- Evaluate how much capital the two of you have already accumulated, as this will help generate replacement income.
When do you need life insurance?
- Generally speaking, you need the most life insurance when you are in the middle of your working life. This is when you have the most responsibilities and the greatest number of dependents, but have not yet accumulated significant savings.
- Young single people just starting out do not need a lot of life insurance, since their death would not entail a loss of income for their survivors. At this stage of life, it is important to guarantee insurability and make sure there is appropriate insurance to cover any debts.
- Older people also have less need for life insurance to replace income. Their children are grown and independent, and they have likely accumulated some capital that is already generating income for two people. In this case, life insurance would serve to protect the net value of the estate and lessen the tax impact at the time of death.
For a personalized analysis of your insurance needs, contact a financial security advisor. He or she has the skills and experience to determine if you are properly insured.