One of the Most Common Questions I Get Asked: Do I Need Life Insurance?
I get asked this question all the time. Do I need life insurance?
The answer is almost alway the same – YES…
…that is if you have an estate, business, debt and/or dependents. Which is most of the population.
Hey, if you are single (and intend to stay that way) and have no intention of having a family or owning a business then you can move on.
The truth is, for the most part, life insurance is for those who want to provide people they leave behind with some cash to navigate the financial loss of a salary.
Sure there are other reasons like providing cash for funerals or trying to defray your tax burden but for the most part life insurance is used for income replacement.
So what would happen to you if your partner were to pass away and their financial contribution simply vanished? Chances are financial devastation.
Let’s check out the reason YOU need life insurance TODAY.
You Absolutely Need Life Insurance If You Have Dependents
If you’re asking yourself “Do I need life insurance” and have dependent children then the answer is a resounding YES.
Why? Because they depend on you to make their way in the world until they are 18.
Food, clothing, transportation, activities and education all cost money. What happens if one day you just don’t come home.
Those checks that pay the mortgage, electricity and vacations just ceases to exist.
Sadly those obligations don’t evaporate when you die. All debts have to be paid before your family receives a dime and if you pass away without a will things can get seriously delayed.
Unfortunately, I know people who have died in the prime of their lives WITHOUT life insurance and it’s created havoc.
So what on earth would happen to your family if one day you just don’t come home?
The Situation Would Be Dire For Your Family If You're the Primary Bread Winner
If you make the lion’s share of the cash, chances are your family be financially devastated. Imagine the kind of cash you need to replace the death of a primary breadwinner…
Let’s say you make $40,000 per year because you work a lighter job to help with the kids. Your work weeks are only 4 days – but your family could never survive on your wage.
Thankfully your partner makes $100,000 which makes everything possible. One day they are involved in an accident and their salary disappears – FOREVER.
Will you family be able to keep their home or will they have to move? Will they be able to make up for the shortfall with more work?
No one wants their families have to confront questions like this.
Our Rule of Thumb to Avoid This Sort of Situation is to Purchase 10 Times Your Gross Salary in Coverage
While this may sound like a lot of money, it really isn’t. Remember this cash is going to carry you and your family through many years of growth and change.
For example let’s use the couple I mentioned above. In this particular case I would recommend the partner earning $100k take out at least $1 million in coverage and the person earning less take out $400K of coverage.
What If One Partner is a Stay At Home Mom or Dad?
This is a terrific question because TIME is money.
In my humble opinion stay at home parents are highly undervalued. They are truly a gift and if you have the ability to have one parent stay at home – my hat is off to you.
Do NOT underestimate their contribution. Imagine if they passed away, what would happen? All of their responsibilities now pass on to you.
School pick up, activities, dinners maybe even the cleaning and laundry. So let’s imagine you have a high powered job and need to put someone in that role. How much do you think this is going to cost? Well I will tell you in Toronto it sets you back about $60k per year.
Your kids are 3 and 7 so you need help for at least 10 years. That’s $600K BEFORE you even consider anything else. OUCH.
You see? Life is costly.
Do I Need Life Insurance: YES, If You Have Debt!
Debt! Ugh we all have it – or at least most of us. Sadly it’s not extinguished when we are. It attaches to your estate and eats through the equity BEFORE your family gets a dime.
This is something you really need to weigh when asking yourself this question: Do I need life insurance?
If you have a huge mortgage, credit card debt or loans life insurance is a terrific tool. Of course this is even more pressing if you have kids – but even if you don’t you should really think about your situation.
Let’s say you are living with someone you love but aren’t married to. Can they afford to stay in the house without your contribution…
…OR maybe you don’t own a home but you are married (without kids) and don’t want to leave your wife of husband hung with your credit card bills and final expenses.
No matter how you slice it – debt is a drag for those you leave behind. Why not plan for it before you die.
You Need Life Insurance If You Have a Business
Whether you are married or NOT owning a business comes with responsibilities. If you have a partner, employees or simply want the business to carry on with or without you – insurance is something you need to consider.
It can help your partner(s) keep the ship afloat while they look for your replacement, it can assure your employees retain their jobs and it can alleviate any outstanding loans that could impact the business.
Life insurance is a terrific tool that all business owners should be well versed in.
Using life insurance as a tool for business succession and/or retirement has a lot of advantages. Insurance premiums are often a tax deduction to the employer, and if your business is doing really well, employers are able to implement these strategies on top of other tax-favored vehicles like company retirement plans.
You Need Life Insurance If You Have a Child with Special Needs
If you have a child with special needs then you understand the power and importance of planning for when you aren’t there.
For most families there is a limited period of time when they are responsible for children. For some it’s 18, for others they take responsibility for their kids through university.
Planning is completely different when you have a child that is dependent until the day they die.
A great way to make sure children with special needs have enough resources after you pass away is to put a permanent policy in trust for them.
This is a complicated tool and I highly suggest working with a lawyer that specializes in trusts to make sure you dot all your i’s and cross all your t’s.
You Need Life Insurance to Pay Final Expenses If You Don't Want Your Family To
Final expenses aren’t cheap. Did you know a funeral can cost up to $20k?
Of course this is an event with all the bells and whistles – and you can do it for a lot less. BUT even if you chose a cremation it will still set you back a few grand.
This is why a lot of elderly people opt for final expense insurance.
It’s affordable and easy to qualify for. The best part? You don’t leave your loved ones holding the bag when you pass away.
If you read my blog, you know I think term works for most people most of the time (and yes of course there are exceptions – see children with special needs above). But I really like final expense insurance, which is a permanent product, because it’s so flexible.
You Need Life Insurance If You Have an Estate & Exhaust Your Tax Sheltering Options
If you are asking the question Do I Need Life Insurance and you have an estate – the answer very well may be YES.
Life insurance is an awesome tool for those of you that have expendable cash. If you have used all your tax sheltering strategies, then life insurance is a good place to stash some more money.
It’s also a way to help your loved ones avoid the hit from taxes when they inherit your property. Many people have lost family homes because of the unexpected tax burden they have to pay to retain a home or something of value.
Call Policy Architects Today! We Can Help
I hope I answered some questions for those of you wondering “Do I need life insurance?”.
The answer is yes if you have:
- A Child with Special Needs
- A Partner You Want to Protect
- Family You Don’t Want to Have to Pay Your Final Expenses
- Loved Ones You Want to Leave a Gift To
- A Cottage You Want to Pass On
Life insurance is a terrific tool and can be used in any number of ways. You can choose permanent or temporary coverage depending on your needs.
We can help you go through all your options to find the BEST coverage for the cheapest rates.
Call us at Policy Architects TODAY.