[...] around with the life insurance calculator offered by Kanetix and the musings of Frugal Trader on determining life insurance requirements, it seemed that $250,000-$300,000 would be adequate for our current situation. This would take care [...]

[...] For life insurance, term life should sufficient for most.  This will provide fairly economical coverage in the case of the death of the main breadwinner in family.  Don’t know how much coverage to get?  Check out my calculations for an example of how much term life insurance we needed. [...]

[...] I'll get into the actual numbers of our insurance requirements.  What factors do you consider for the amount of life insurance that you [...]

You mentioned that you are very conservative when it comes to financial safety.

Have you ever considered growing your money in a life insurance policy? I’m not talking about Universal Life policy but rather a participating whole life.

Imagine having the growth in a tax free environment and being able to have an income tax free.

Rob

1. Yes, we would prefer to play it safe and assume the low growth and dividend rates. Who knows what the markets are going to do during the time that the surviving spouse needs the cash the most. Also, I would prefer some capital preserved to act as an emergency fund if not anything else. I guess when it comes to financial safety, I’m very conservative.

2. With regards to leverage, the plan was really with my wife in mind. She is not as “financially literate” as I am, and i’m pretty sure that she would feel more comfortable without leverage. I realize that the life insurance plan is very customized for our family.

Great point about RRSP contributions. If I were to pass, my wife has a gold ticket pension plan, so no worries there. If my wife were to pass, I would find a way (probably through leverage) to make sure that my retirement is paid for.

You may be exaggerating your need for insurance. I have 2 questions for you.

1. Isn’t your main need for insurance a result of your preference for living entirely on low dividend rates? If your investments were equity investments that averaged 8%/year long term (say 6% after inflation), instead of only 2.8% dividends, does that not eliminate your insurance need?

Your options only include dividends only (not using the principal) or a savings accounts with using the principal. Why not BOTH – invest effectively and assume the principal is used.

2. Why would you end all leverage on death? The insurance proceeds would allow you to convert the rest of your mortgage to tax deductible. Then the investmnents and the interest tax deduction can be used to replace your income. Wouldn’t continuing the SM and leverage help your situation (again if making more than 2.8%)?

My other question is it sounds like you are not providing for RRSP contributions – is that right? Would the survivor not want to still save for retirement?

Ed

We actually consider AD&D insurance to be mainly a fun gamble with little practical use in most situations. When your family hears you died, they can always hope it was an accident so they can get a nice windfall!

Death by accident is actually quite rare – even for people under 40. Only about 2-3% of deaths are by accident, which is why accidental death insurance is usually very inexpensive. Getting 2 to 5x your insurance benefit with AD&D is oftena only $5-10/month.

The main reason it is not very useful is that few people need more insurance if they die by accident than if they die by any other reason, such as sickness. If FT gets AD&D, that still leaves his family unprotected against all the more common causes of death.

Ed

The most likely way someone under 40 would die is through an accident (unless there is already underlying health issues). AD&D is another 2x annual salary in the case of accidental death, for a total of 5x annual salary in the case of accidental death.

Even if your kids were just born, you should only have to worry about child care expenses for the next 13 years, tops.