The Why And How Much Of Life Insurance

If you are not sure if you need life insurance or how much you need, then you are not the only one.  Insurance is a function of your financial liability and income replacement in case of untimely death.  And there is generally an adjustment made for current savings (not including things like your home that would not be sold on a death).

Here is an example to help you understand better:

William, aged 35 earns $100,000 a year. His wife Kate, aged 30 is a stay at home mom right now, but she expects to return to work in 4 years once their newborn Son George start attending school. She expects to be earning at least $50K per year. Their current home is worth $500K and they have a mortgage on the home of $300K with a 20 year amortization period. They expect their son George will attend university, likely for 5 years or more, and they would like him to be able to go abroad. So they are planning for $25,000 a year. They have a car loan for $30,000 that will be paid off in 5 years.   And they generally carry a balance on their credit card of $5,000. William has one times salary of coverage at work.   They each have $80,000 of rsp savings and $10,000 of TFSA savings.

 


  William:   Life insurance need

 

+ 20 working years x $100,000 x 70%

$1,400.000

+ Mortgage

$200,000

+ Education for George

$125,000

+ Car Loan

$30,000

+ Credit Card Bills

$5,000

- RSP Savings

-$80,000

-TFSA Savings

-$10,000

- Work insurance

-100,000

Total Need

=$1,550,000