Slide Do you need help
getting out of debts?
Find out your options! For free professional and
confidential initial consultation, call:
adam@debtcliniccanada.ca (905) 970-0439
Slide Do you need help
getting out of debts?
Find out your options! For free professional and
confidential initial consultation, call:
(905) 970-0439 adam@debtcliniccanada.ca
Slide Do you need help
getting out of debts?
Find out your options! For free professional and
confidential initial consultation, call:
(905) 970-0439 adam@debtcliniccanada.ca
Slide Do you need help
getting out of debts?
Find out your options! For free professional and
confidential initial consultation, call:
(905) 970-0439 adam@debtcliniccanada.ca

September 2020 – HOW MUCH LIFE INSURANCE YOU REALLY NEED?

By:Adam Aspilla
February 2, 2021

It is important to answer the above question. But first, what is exactly a Life Insurance? Life Insurance is an agreement wherein an insurance company agrees to pay a specified amount after the death of an insured person as long as the premiums are paid up to date.

Policies give insured persons the assurance that their loved ones will have peace of mind and financial protection after their death. 

Life Insurance falls into two categories – whole life and term – some provide you with cash value, taking the premiums you pay and investing them into the market. While others only pay the face value of your insurance if you die within a certain time period. 

The question is how much life insurance you really need? Most insurance companies say, a reasonable amount for life insurance is six to ten times the amount of your annual salary.  Another way to calculate the amount of life insurance needed is to  multiply your annual salary by the number of years left until retirement.

The purpose of life insurance is primarily to replace your income when you die to cover the expenses of your love ones (dependents) on your income like: food, clothing, shelter, transportation and education.

 Accordingly, to cover the above-mentioned expenses, the face value or amount of life your insurance could be calculated up to the time your dependents earn their own income to support themselves financially.

In the addition to the above-mentioned, two ways of calculating how much life insurance you really need, you estimate how many more years your dependent children complete their education and be able to find employment.

Then, calculate your family’s monthly living expenses, when you are gone plus your children expenses for their education. Based on their monthly expenses, convert it to yearly expense. Then, multiply the yearly expenses to the numbers of years your dependent could finish their education and find employment.

Example: Assuming you have a family of four: you, your spouse, and two dependent children. Assuming further, your spouse is gainfully employed. Take for granted, you contribute $1,200.00 monthly or $14,400.00 yearly ($1,200.00 x 12) to cover your family expenses annually. 

Should it will take seven years for your dependent children to complete their education and become financially independent, therefore, the ideal amount (face value) of your life insurance is $100,800.00 ($14,400.00 x 7 years).

On top of the $100,800.00 you may add your estimated burial expenses.

When you decide to purchase a life insurance, be sure that you will be able to pay the premium on time otherwise, your insurance coverage will be cancelled. 

Should it is not affordable for you to pay the premium of an ideal amount of your insurance as above calculated, just get an insurance policy with lesser face value that premium is affordable. It’s better to have smaller amount of insurance than no life insurance at all.

For greater coverage with lesser premium you may choose a Term Insurance policy. Your insurance agent could explain it to you.

Adam Aspilla operates the Debt Clinic of Canada Inc. for more than 30 years.  He was a former financial planner, a former mortgage broker, and the author of the book, You Can Negotiate All Your Debts.  He also writes another column, “Biblical Perspectives” in this paper. For a free initial, expert, professional and confidential financial consultation on your financial issues like: Debt Consolidation, Credit Counseling, Consumer Proposal, Bankruptcy, and securing 1st and 2nd Mortgages, call 905-970-0439 or visit www.debtcliniccanada.ca

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