Life Insurance 101

Life Insurance 101

So you think life insurance is baffling? Then you’ve come to the right place! In this post, SSQ Insurance will explain what it is, who it’s for and how much you need.

What is life insurance?

This is the insurance that protects those who depend on you financially (commonly referred to as dependents).

Upon your death, the insurance company will pay your beneficiaries a tax-free amount of money that will typically be used to cover your end-of-life expenses and maintain their lifestyle.

Do you need life insurance?

To find out, ask yourself this question: Would my family be in dire financial straits were I to die today?

If so, then it would be wise to get life insurance. That way, they won’t be saddled with your debts and obligations.

Often, the need for life insurance arises when you welcome a newborn into your family or when you buy a house. These life events tend to make you realize that your death could have a significant financial impact on your loved ones.

Life insurance for children?

Is life insurance for a child required considering that that they have no dependents?

There are several schools of thought on the subject. Some believe that the death of a child has no serious financial impact and that life insurance is unnecessary. Others believe that life insurance, with a low coverage amount, can be used to pay for funeral expenses, which can easily cost $10,000.

Assess the situation with your advisor to find the best solution for you.
How much insurance do you need?

When calculating the required coverage amount, consider the following expenses:

  • Funeral costs
  • Income tax payable upon death
  • Mortgage (especially if you don’t have mortgage protection insurance)
  • Loans (vehicle, line of credit, credit card, student loan, etc.)

You also have to consider everything that factors into maintaining the lifestyle your loved ones are accustomed to:

  • Childcare or school fees
  • Groceries
  • Emergency fund
  • Medical expenses
  • Clothing
  • Etc.

You must also include assets like investments, pension funds and real-estate holdings.

Finally, you have to consider the number of years your loved ones will depend on your income.

Again, your advisor is the best person to help you calculate the life insurance coverage amount you need. They will find the best product based on your financial needs and your ability to pay.

Are you insurable?

Before getting a life insurance policy, you must answer a medical questionnaire. The purpose of the questionnaire is to evaluate your health and determine the likelihood that you will become ill.

Blood samples or other medical tests are sometimes required, especially when large amounts are involved.

This is referred to as checking your insurability as well as your eligibility for the coverage. This is also when the insurance premium is calculated.

Lying or omitting facts about your health and lifestyle is never a good way to lower your premium.

Note: This blog post is provided for information purposes only. It is not a substitute for professional legal, financial or fiscal advice. For advice specific to your personal situation, always speak with your advisor. SSQ cannot be held responsible for any decision made as a result of reading this blog post.