From the expert: What you should consider before you buy life insurance
Sep 16, 2024
From our 2024 scholar Nicole Simons of CPN Financial Services Ltd.
Life insurance is not just about protecting your loved ones; it’s about ensuring peace of mind and securing your financial future. September is life insurance awareness month, so I thought I’d share the key factors you should consider before purchasing life insurance.
1. Understand why you need life insurance
The first question to ask yourself is, “Why do I need life insurance?” Understanding your primary motivation can help guide your decision. Some common reasons include:
- Family protection: If you have dependents—whether children, a spouse, or elderly parents—life insurance can provide financial support in your absence.
- Income replacement: For working women, life insurance can help replace lost income, covering expenses like mortgage payments, childcare, or education costs.
- Debt coverage: Consider any debts that could burden your loved ones if something happens to you, such as a mortgage, car loans or student loans.
- Legacy planning: Some women use life insurance to leave a financial legacy or support a favourite charity after they’re gone.
Having clarity on your "why" helps you determine the type and amount of coverage that fits your needs.
2. Determine how much coverage you need
Determining the right amount of coverage can be overwhelming, but it’s crucial. There’s no one-size-fits-all answer, but here are some guidelines:
- Consider your financial obligations: Add up your outstanding debts, future expenses (like college tuition for children), and ongoing financial needs (such as household expenses or healthcare costs).
- Think about your income replacement needs: A common rule of thumb is to aim for a policy that’s 7 to 10 times your annual income, but this should be adjusted based on your unique circumstances.
- Factor in inflation and future financial goals: Your needs may evolve, so plan for future milestones like homeownership, starting a business, or retirement planning.
Use these factors to estimate how much coverage is necessary to provide for your loved ones adequately.
3. Choose the right type of life insurance
There are several types of life insurance policies, but the two most common are term and whole life insurance. Here’s a quick breakdown:
- Term life insurance: This policy provides coverage for a specific period (e.g., 10, 20, or 30 years) and is usually more affordable. It’s ideal if you need coverage during your working years or until your children are financially independent.
- Whole life insurance (permanent insurance): This policy lasts a lifetime and includes a cash value component that grows over time. Whole life insurance is often more expensive but offers lifelong coverage and the potential to build savings you can borrow against.
Consider your budget, long-term financial goals, and whether you want a policy that builds cash value when deciding between these options.
4. Assess your budget
Life insurance is an investment in your family’s future, but it’s essential to find a policy that fits comfortably within your budget. Consider:
- Monthly premiums: Determine what you can realistically afford each month without compromising your current financial stability.
- Future adjustments: Some policies offer flexibility, such as adjusting coverage amounts or converting term insurance to whole life as your needs change.
It’s better to have some coverage, even if it’s less than you initially planned, rather than none at all.
5. Think about your beneficiaries
Choosing your beneficiaries is one of the most important aspects of life insurance. Common beneficiaries include:
- Spouse or partner: To ensure they can maintain their standard of living.
- Children: To cover future needs like education or caregiving.
- Other family members: Such as siblings, parents or close friends who depend on you financially.
- Charities: Some policies allow you to name a charity as a beneficiary, enabling you to support causes close to your heart.
It’s essential to review and update your beneficiaries regularly, especially after major life events like marriage, divorce or the birth of a child.
6. Review regularly and adjust as needed
Your life insurance needs are not static. As life changes, so should your coverage. Significant events like getting married, having children, buying a home or changing jobs can alter your financial needs. Make it a habit to review your policy every few years or after major life events to ensure it still aligns with your goals.
Final thoughts
As an insurance broker, my role is to help guide you through this process, answer your questions, and find the best fit for your circumstances. Ready to explore your options? Let’s connect and discuss how we can tailor a life insurance plan that fits your needs perfectly. Use this link to book your consultation.
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Nicole Simons is a licensed insurance broker at CPN Financial Services Ltd., a family-owned business. For the past 13 years, she has equipped clients with the tools they need to protect, diversify, and grow their financial assets. She uses an integrated approach, pairing traditional wealth-management products with financial literacy. Nicole believes that long-term financial freedom begins with self-awareness and strategic planning. Known for her exceptional customer service skills, Nicole educates her clients with patience and expertise. She has received numerous referrals because of her unique ability to simplify financial concepts in a reassuring and empowering way. Her mission is to show hardworking people that a debt-free lifestyle, excellent credit score and financial security are all within their reach.
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