A life insurance policy is instrumental when it comes to protecting your family and providing for them financially in the event that one or both parents pass away.
How much coverage is required depends on many different factors. Simply put, when a person dies , that person’s estate (consisting of assets minus liabilities) when combined with the life insurance payout, should cover all outstanding debts and also provide for a desired standard of living for the surviving dependents for a given amount of time.
What many Canadians fail to do is update their life insurance coverage when major life changes occur.
The following events should be considered when recalculating how much life insurance coverage you need:
- Selling and/or purchasing a property.
- Major changes in credit card debt.
- Any monies that are inherited.
- Changes in marital status.
- Changes in employment status.
- The purchase of new vehicles.
- The birth of children.
- Dependents that incur student debt (or conversely, getting rid of existing student debt).
- The addition of any other major assets and/or liabilities.
- In addition to possible changes to your life insurance plan, you should also consider any necessary changes to your last will and testament.
If you have a term life policy and the term expires then you have several options:
- Renew the term life insurance policy (assuming that the plan is renewable).
- Convert the term plan to a whole life insurance policy (assuming the plan is convertible). Whole life is more expensive than term life, but it does allow for the accumulation of a cash value, and can be used for wealth management and estate planning.
- Do not purchase another life insurance plan (usually not a good idea unless you have enough assets to cover funeral costs and also provide for existing dependents).
If you do not have a life insurance plan we would urge you to find out how much a term life plan costs. Term life is relatively cheap, and can provide peace of mind in case the unexpected happens.
We hope you found this article helpful. If you have any questions about updating a life insurance policy please contact us, as experienced Canadian insurance brokers we are here to help!