Maybe you heard some co-workers talking about it. Maybe you started your financial journey and a financial advisor told you about Life Insurance. Maybe, you just bought your first house and are wanting your wife and kids to live in it in case something happens to you. All of those are good reasons to start thinking about Life Insurance. The question is, Do I actually NEED life insurance? In this article we are going to share some common life stages and whether or not at these life stages getting life insurance is the right decision.
Twenty-Something with No Dependents.
At this stage, it is likely your income is relatively low compared to where it could be. You are likely contending with student loans. Further, you are likely starting your personal finance journey thinking about saving, investing, buying a home, and more. At this stage, with no dependents, life insurance is not necessary. You will likely already have something in place through your work. That should be enough. The one thing to consider is that life insurance will never be cheaper than it is today. So if your family has a history of heart disease, cancer, stroke, etc it might be worth locking in a cheap price now.
30s-50s: Spouse, Kids and House
During this phase of life, you have people that depend on you and the income you earn. You likely have some form of coverage through your work, however, this is likely not enough to provide for your family and clear your debts if you die unexpectedly. At this stage doing a proper NEEDS ANALYSIS would be the right approach. Ask yourself questions like, “what are my debts?, what are my assets? how much will my family need to survive in my absence?” Do some math.
When you add up your debts and how much your family will need if you die unexpectedly, that will give you how much life insurance you need. Subtract the total from any policies you have through work and that will give you how much you need to buy. In general, we would recommend buying term insurance. It is cheap and it will cover you for a specific period of time 10, 20, 30 years. When your kids are grown up and the debts are paid off, you no longer have a need for insurance and can therefore cancel it.
Generally, at this stage of life, kids are grown up and many debts are paid off. The need for insurance is relatively small which is good because at this phase of life it gets considerably more expensive. The fact of the matter is, at this stage in life you only really need insurance for estate planning purposes. Do you have a cottage? Do you have more than one property? Would you like to pass on any assets to children or grandchildren? This is where life insurance comes in. Speak to your accountant to figure out what the potential tax liabilities would be when you die. Then you can buy a permanent insurance policy to deal with those tax liabilities. Make sure you are doing your research, because of the costs associated with insurance at this phase of life, doing an analysis on whether the amount you pay will be more than your tax liability.
Overall, Life insurance can be helpful if the income earner of the family dies unexpectedly. However, we do not believe in people being overinsured or paying for something you do not need. The best thing to do is to do your own research to determine what you think is best for you and your family. If you need assistance book a free call.