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To
establish the amount you need to replace your income, the accepted formula
is to take your annual income X
10, minus 25%. The plan here is to leave behind enough money for your loved
ones to invest so that at a 5% return they could receive the same income
as though you were still able to provide for them.
The less 25% is because expenses should drop by about 25% because
you are no longer a consumer. Add
to this “income replacement”, an amount to cover your final expenses
and pay your debts, and you have a rough total of your insurance needs. If you
are concerned about the other potential reasons, it is quite simple to add
an amount as a “leave behind lump sum” over and above what you might
consider a “present need” to cover the other things that you wish to
provide for. Now,
here we are dealing with basic life insurance needs.
There is an area of coverage which is much more complicated called
“estate protection”. This
is where you have accumulated a fair amount of assets or “wealth” and
you wish to use life insurance to maintain the value of your estate on
your death, especially in regard to taxes
We are not going to deal specifically with that in this
publication. We are gong to
stick to the basics, which really covers the needs of 90% of Canadians. We
have supplied a form that is intended to help you work our your life
insurance needs in a very simple manner.
Remember, it does not have to be complicated to be effective.
This method will suffice for most people.
* NOTE: To view the PDF files, you need Adobe Acrobat Reader installed on your computer. If you do not have Acrobat Reader, please download it from the link below.
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