I have enough life insurance…Don’t I?

I have enough life insurance…Don’t I?

How much life insurance is enough?
The stock answer to this important question used to be “10 times your salary.” But, in my experience this ‘one-size-fits-all’ formula fails to consider the most important factor – the life of the person being insured.

If you are single and debt-free, 10 times your salary is probably far too much. If you have four children, a large mortgage and a stay at home spouse: it probably isn’t.

How much will your family need to live comfortably, if you die unexpectedly? Here are some guidelines to help you understand your personal life insurance requirements in order to meet the specific needs of those you love, after you’re gone.

First, think about money you would need to cover immediate expenses:
• Funeral costs (average between $10,000 and $15,000)
• Payment of outstanding taxes and debts (credit cards, bank loans or lines of credit)
• Funds to replace your spouse or partner’s income so that he/she can take time off work to grieve and recover fully
• Money for special needs around your death, like family counseling services or airfare for special relatives or friends with limited resources.
Then add future and ongoing expenses:
• A paid-off mortgage
• Money for your children’s education
• An emergency fund to cover future difficulties your family might encounter
• Special gifts to provide for a disabled child or an elderly a parent
• A gift to your university foundation or favourite charity.
Add these items together.

Next consider what loss of your income would mean to your family. If you are single with no dependants, your income does not need replacement. However, if you have a family, you need to consider whether or not they could live comfortably on your surviving spouse’s income, after all other requirements are met.
Perhaps you’ll need a lump sum to cover the loss of your income for a period of time. This can be quite substantial if your family is young and in need of paid or at-home care. For example: To provide an income of $1,500/ month for 20 years, based on 3% interest (considering inflation), you’ll need $270,000 insurance coverage.

Add your income replacement amount to total.

Next figure out what you have available:
• Savings in the bank
• Life insurance through your employer (only consider this if you plan to stay at your current job)
• Canada Pension Plan death benefit (will pay up to $2,500)
• Private life insurance policies
• Non-registered Investments

You could include your RRSPs, but really those are meant for retirement. You could also include some equity from downsizing your home, but selling and moving could add to the strain and stress that your family experiences at the time of your death. Again it would be best to leave this out of the equation.

Subtract what you have from what you want and need, and look at the difference. This is the approximate amount of life insurance coverage you need.
It is a good idea to contact a licensed agent or insurance broker to help determine your life insurance needs and get the best available options for coverage.


This article was prepared solely by Laura Chanin who is a registered representative of HollisWealthTM (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this article are those of Laura Chanin alone and not those of HollisWealth. 
TM Trademark of The Bank of Nova Scotia, used under license.