How life insurance can help your dependents

We insure our cars, our homes and our health, because it is mandated by law. Life Insurance, however, is optional, so is often relegated to our, “to do list”. As September is Life Insurance Awareness month (North America), we believe this is an ideal time to highlight why insuring yourself is so important to you and your loved ones.

Life Insurance replaces the loss of an income, which enables your beneficiaries to maintain the lifestyle that has been established for them. It can provide both a safety net and an opportunity for the future for those left behind. Life Insurance is a valuable tool and is an essential part of your financial planning.

Why do I need it?

Upon the death of the insured, Life Insurance can potentially 1) Create an Estate to help provide needed funds for loved ones, or create a legacy for heirs or even provide to a charity.  Alternatively, Life Insurance can 2) Preserve an Estate allowing beneficiaries to settle an outstanding mortgage, provide a succession plan for a business , help settle estate death tax and provide financing to maintain property.

How much do I need?

It is recommended that you insure yourself anywhere from five to 20 times your annual income. With that as a starting point, how do you determine if you require $250K, $500K, $1M or more in life insurance coverage? The best way to figure out what you need is to ask a life insurance professional to conduct a financial needs analysis. Start by gathering all your personal financial information and estimating how much would be required to meet your financial obligations and expenses. To calculate this figure, think through these three types of expenses: 

• Immediate – funeral costs, medical expenses, outstanding debt (loans, credit cards).
  
• Ongoing – money for your family to live on for a specific time period to help pay for everyday living expenses (utilities, mortgage/rent, transportation, health care, school fees).
• Future – a college savings plan for your dependents.

 Using Life Insurance for Estate Planning Purposes

A few examples of how Life Insurance can assist with estate planning are detailed below: 

• Provide liquidity in an estate to pay off liabilities such as taxes or a mortgage. This will ensure that non-liquid assets, such as a house or business, do not have to be sold, but can be left to your beneficiaries. To give you an idea of what costs can be attached to your estate, below is a schedule outlining how estate stamp duties are assessed:
  
• The first $100,000.00 of a deceased’s estate is exempt from stamp duty;
• The next $100,000.00 of value is assessed at 5 per cent;
• The next $800,000.00 is assessed at 10 per cent;
• The next $1,000,000 is assessed at 15 per cent
• Any amount over $2,000,000 is assessed at 20 per cent;
• Establish a fund to provide income for an individual you wish to support. 
• Allow you to make a donation to charity.  If you want to give something for a cause that is dear to your heart, this can be arranged with life insurance.

Jonathan Robinson is, Sales Manager, Colonial Life Assurance Co. Ltd.