How much life insurance should a teacher have?

The Life Insurance Agent of Canada: There are various different types of life insurance available, but how do you know which one is right for you? Once you’ve found the right product, how much should you buy?

Do I need life insurance?

Are you married, have children, a mortgage, or other outstanding debts? Chances are you need some life insurance to assist your dependents should you pass away. (If you don’t have some of those things, don’t assume you don’t need life insurance.)

Take a typical family – husband, wife, and two kids. If the husband passes away, the wife is left with one income to provide for the three of them. One income to pay for everyday expenses, save for college, two growing children, and fund a future retirement. If there was a lump sum of money (Tax-Free) available to cover most (if not all) of these costs, that would be ideal.

Life insurance was designed for this primary need. It’s about maintaining the quality of living for the surviving family members and it’s not just paying down debt or living expenses. Consider the impact on children if the home needs to be sold because it is unaffordable for the surviving spouse. Moving to a lower-income neighbourhood, and changing schools all cause anxiety and leave hidden scars. Adequate Life insurance provides cash and that cash provides better choices.

I have some life insurance coverage from the school board. Do I need more?

While it’s true life insurance is available through the school board, it’s not nearly enough to cover all your needs such as; debt retirement, funeral expenses, living expenses, housing expenses, daycare, future education costs even retirement needs.

With the high cost of housing prices in Canada, many people need at least $1,000,000 in coverage to cover their family’s future costs, lost income and lost retirement savings.

How much do I need?

This depends on who you are, what life stage you’re in, what debts you have, and what goals you’re working towards! It is a custom situation for everyone, and one size rarely fits all. Most financial professionals use calculators to determine how much insurance their clients require.

For many people who are trying to use a rule of thumb, you should aim for between 10x-20x of your annual salary in coverage. But of course, this can be a wide range, so some custom analysis is always the best way to go.

Once you have an idea of how much you need, the cost of getting this insurance can vary widely depending on the type of insurance you buy.

What kind of insurance to buy?

There’s two kinds of life insurance: Term and Permanent

Term – this is purchasing pure insurance for a period of time. If you are 30 years old and want to insure yourself until you are 60, then you’ll purchase a 30-year term policy.

A level-term policy will keep the premiums the same throughout the 30-years (recommended), but once you reach 60, that insurance will go away (or get a lot more expensive). Term insurance is the lowest cost method of covering a large goal over a relatively short period. Term insurance is the highest cost of insurance to use at older ages say above 50 to cover final needs such as funeral and estate taxes. Permanent insurance is more cost-effective for those goals especially as final needs expenses rise over time.

Permanent – Permanent insurance comes in various forms – Whole Life & Universal Life. These are variations of a life insurance policy with a savings account (“cash value”) attached to it. Whole Life policies have a fixed amount of growth to the cash value (i.e. 5%).

Universal Life can assign these savings to segregated funds so it has the potential to grow faster or do a fixed rate of return. It also provides a lower premium than whole life.

These policies can get confusing very quickly, and there seems to be a limitless amount of riders (additional benefits) that can be added to these policies. They play a vital role in your financial plan during estate planning or as an alternative investment.

Who do I buy it from?

If you have an insurance agent that you work with, many of them are qualified to sell life insurance. If they only present insurance from one company ask why? Some companies pay more to advisors to sell their products. It’s ok to ask the advisor to disclose their compensation to you. In fact, it may reveal the motivation for recommending that particular insurance solution.

What do you recommend?

Insurance should always be considered by completing a comprehensive insurance needs analysis. Situations are different for everyone and implementing the wrong insurance solution can have devastating consequences. I do believe everyone should have insurance, rich & poor alike all have a need.

In 20 years of providing insurance solutions, I’ve been in many homes where the family never increased their insurance coverage since the first time they bought it. Think of your grandparents buying $10 thousand of coverage when homes were only $20,000. Many of them never bought insurance as their family expanded and their needs grew. Sadly, some of those families desperately needed more money at their passing.

There’s a saying our business; “I’ve never met a widow who complained the death claim was too much.”