People generally don't like talking about death, especially planning for it. I'm no exception, but with the new home and child coming, I'm looking into insurance more seriously. Before, with both of us working and make comparable income, life insurance wasn't really a consideration because there weren't any financial dependents in the picture. The only thing we had covered was the mortgage via mortgage life insurance.
With the new home, we're going with term life insurance instead of typical mortgage life insurance. Why? The reason being is that mortgage life premiums stay the same with a decreasing benefit. Term life benefits, however, do not change over the term.
Why not go with whole life or universal life? To me, those products provide sub par investment return for the extra premium charged. I'm planning on buying term life and investing the rest myself.
Hopefully, by the time that the term insurance expires (20 years), we'll have a large enough portfolio to be self insured. If not, we'll continue to buy just enough term insurance to cover our needs.
If you want to read another opinion on term or permanent insurance, you can read Ed Rempel's article with this thoughts on universal life insurance.
So looking at the worst case scenarios, how much life insurance do we need? Here are some of the factors to consider:
- Existing life insurance
- Household after tax income if one spouse were to pass
- Portfolio value (rrsp, non-reg, cash)
- Debt load if one spouse were to pass
- Household/Childcare expenses if one spouse were to pass
- Child's education fund
- Child requirements if both parents pass
- Funeral expenses
Tomorrow, I'll get into the actual numbers of our insurance requirements. What factors do you consider for the amount of life insurance that you need?
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