Life insurance proceeds help ensure your family members are provided for, and can achieve their long-term goals, even if you’re not there to support them.
If the unexpected does happen, your family can use the proceeds to:
- Cover funeral costs
- Pay off large debts, like a mortgage or line of credit
- Replace your income for at least a few years
- Continue plans you’ve made for the future, such as an education fund for the kids
Another valuable feature of life insurance is that the benefit paid to your beneficiary is almost always tax free.
What is Life Insurance?
The concept of insurance goes back to the days of the Romans, but it wasn’t formalized until the 18th century. Essentially, it’s a means of spreading financial risk among a large number of people who pay into a fund or pool. In this way, the cost is minimized for those who suffer an unexpected misfortune.
Life insurance is a way to protect your survivors and dependents against financial hardship. A life insurance contract or policy is a legal agreement between you and an insurance company that guarantees payment of the face value of the policy, upon death.
Questions to ask yourself if you want to leave your family well:
- If you are in a personal partnership (usually marriage), how much do you contribute to the family income? If you were to die prematurely, how would your survivor(s) get by, especially dependent children?
- Does anyone else depend on you financially, such as a parent, grandparent, brother or sister?
- If you are a single parent, what level of support payments are you making or getting? How would these be kept up in the event of the contributor’s death?
- If you have a mortgage on your home, do you want it paid off in the event of your death?
- If you have children, do you want to put aside money to complete their education in the event of your death?
- Are there any other family members or organizations to whom you would like to leave money?
- Could life insurance play a role in business or farm succession plans?
How do you figure out how much life insurance you need?
A ballpark measure sometimes used is between five and seven times current net income. But to work out the specifics of your own situation, you’ll want a financial needs analysis. It gives you a picture of the capital your survivors need when you die. It looks at assets that would be available to them, liabilities they would have to deal with, and continuing family needs for income.
Have more questions?
The Canadian Life and Health Insurance Association Inc has created this online helpful step-by-step guide that covers everything you need to know about life insurance.
And, Scully Insurance has trusted advisors that can analyse your family's needs and work with you to build a plan to protect them if something were to happen to you.