How to Determine Your Life Insurance Needs

No one wants to dwell upon thoughts of their own death, but you do need to do some planning for the future. This is especially true if you have a family that relies on your income. The following guide can help you decide how much insurance you need so you select the right product.

When to Consider Life Insurance

Life insurance is designed for two main purposes—to cover your estimated funeral expenses and to provide peace of mind for your survivors.

Funeral Expense Policy

Everyone should have a small policy for funeral expenses. The amount depends on the average funeral costs in your area and the method of burial you prefer. A casket burial in Ontario, for example, can cost $6,300, so you want to make sure the policy coverage amount is sufficient for your preferences.

Covering Living Expenses

Realistically covering the living expenses of your spouse and children requires a larger policy or multiple policies that add up to the required amount. Before purchasing, make a realistic inventory to determine the amount of coverage you need,

  • Will your spouse work? If you have young children, you may want to carry a larger policy since your spouse may not be able to work right away. You can carry less insurance if your spouse is employed or if your children are older, which allows your spouse more time to work.

  • Do you have a mortgage? Car loans? Other outstanding bills? Consider taking out a policy large enough to pay off these loans in the event of your death. This not only saves you the added hassle and expense of taking out separate mortgage insurance policies, it also helps lower the living expenses of your survivors.

  • What are the realistic living expenses of your family? How much does your family need to live on annually, if you subtract any loans you have already figured into your policy needs?

  • Are there any future expenses you want to be prepared for? As an example, if you have a child or children approaching college age, you may want a larger policy so that tuition payments won't put stress on your spouse if you were to pass away unexpectedly.

Once you know how much money you need to provide a useful income to your family, meet with an insurance broker. He or she will use this numbers to find the life insurance policies that will meet your needs while also fitting into your budget.