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how much life insurance do you actually need?

Knowing how much life insurance you actually need isn't that difficult to determine.

It's as simple as answering 7 basic questions.

Whether you're looking for life insurance for yourself, a loved one, or maybe you're a new broker in the industry and want to know what questions you need to ask your clients, the questions below will help you to determine EXACTLY how much life insurance you need.

Step 1

Determine if you already have life insurance, and if so, how much.

You may already have some life insurance with your employer, or with your spouse's employer. If so, figure out the amount. If you don't have any existing life insurance, skip this step.

Let's assume it's $0.

Step 2

Add up your total liabilities.

Example: Mortgage + Credit Card Bills + Student Loans + Car Loans + Mortgage on investment property etc...

Let's say your total liabilities are $600,000.

Step 3

Do you have any dependents?

Dependents are individuals who financially rely on you to live.

They can be your children, an older parent, a disabled individual, spouse, etc...

If you don't have any dependents, you can skip this step.

In our example, we will say there are two children, ages 10 and 15.

Step 4

How many years do you believe these dependents will rely on you financially?

This number is an estimate.

In our example, there is a 10 year-old and a 15-year old.

If we assume that both of these children will no longer be financially dependent on you at age 25, then the total number of years your dependents will be financially dependent is 25 years.

  • the 10 year-old is 15 years away from 25.

  • the 15 year-old is 10 years away from 25.

  • Total # of years of financial dependence = 25.

Step 5

Multiply your annual income by the total # of years your dependents will rely on you financially.

This number will determine how much coverage you will need in order for your dependents to maintain their existing lifestyle.

Let's assume your annual income (from all sources) is $100,000.

$100,000 x 25 years = 2,500,000

Step 6

add any potential future expenses.

Examples of future expenses are:

  • funeral expenses

  • education costs for children

Let's assume these children will both pursue a 4-year post-secondary education. The average tuition cost for a university in Canada is about $8,000/year.

That's $32,000 per child, and $64,000 in education expenses in total.

Funeral expenses are typically around $25,000.

Total future expenses = $89,000.

Step 7

Determine your total life insurance coverage required.

To determine how much life insurance coverage you need, we add:

Step 2 + Step 5 + Step 6 = amount of life insurance needed.

In our example:

Step 2 = $600,000

Step 5 = $2,500,000

Step 6 = $89,000

Total life insurance needs = $3,189,000

These are the 7 steps to determining how much life insurance you need!

It's important to understand that this coverage amount is just a recommendation.

You have full control over how much life insurance you want to have.

At the end of the day, it needs to fit the budget!

Now that you know how much life insurance you need, your next step is to get a quote!

This is where I come in!

You are more than welcome to text or call me to request a quote at 647-393-3474.

Hope you learned something today, thanks for reading!





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