Life Insurance 101: When family are depending on you
Life insurance can be an important part of everyone’s financial plan especially if they have dependents. (Photo credit: dolgachov/ iStock)
Ben was 35 when he passed away. Married to Alice, 31, they had two children together. The future looked promising; he was a nurse, she was in university and they were renting an apartment together in Toronto. But Ben’s diagnoses of brain cancer and his subsequent death left the family’s finances in shambles.
Alice called Reuben Menzelefsky, an insurance specialist, when she was ready to rebuild her life.
“I only came into the picture after this happened when she wanted to buy a policy for herself,” Menzelefsky says. “She said she could maybe scrounge together $10-$15 a month.”
Ben had no life insurance, and Alice’s life fell apart without it. In case of the worst-possible scenario, she was anxious to ensure her kids would have some security in the event something happened to her.
Since Ben had been the sole-income earner, Alice was forced to drop out of school and take on a minimum-wage job. She also had to find a roommate in her already-crowded apartment to help with the bills. To top it off, she discovered $35,000 in credit card debt that she was on the hook for.
Luckily, Menzelefsky was able to put her in touch with a philanthropic organization that helped her buy a life insurance policy.
“If her husband had a policy in place, she would have had this lump sum capital too,” says Menzelefsky, an insurance specialist at Independent Financial Concepts Group. Perhaps she would have purchased a condo and not worried about rent payments, he says. “She could have finished school, gotten a degree, gotten a good paying job. Not have financial stress, and life would have been very different.”
Life insurance can be an important part of everyone’s financial plan especially if they have dependents. Age is a less-relevant factor than asking yourself who relies on your income. This may include children, siblings, spouses or elderly parents.
Menzelefsky says he has clients who have only recently graduated high school but whose parents, for whom working is difficult, rely on them to bring in income and help out at home.
Of course, the younger and healthier you are when you decide to buy a life insurance policy, the cheaper it can be. Premiums vary based on factors such as whether you smoke, and health considerations such as diabetes, high blood pressure and high cholesterol. Basically the less likely your chance of dying in the near future, the less expensive your policy.
Once you decide to buy life insurance the question becomes: how much coverage should you get?
Menzelefsky says from his own experience that “the majority of people do not have enough life insurance coverage.” People may underestimate their living costs and find themselves unable to maintain their lifestyle upon a loved one’s death.
To help avoid this scenario, consider insuring yourself enough to cover your current living expenses, along with how much it would cost your dependents to live in your absence (essentially to carry on with the lifestyle they are used to).
New online calculators can help you figure out your insurance needs. CIBC Insurance, for example, has an online life insurance needs analysis questionnaire CIBC Term Life Needs Analysis that will guide you and recommend the amount of coverage that you may need.
Here’s a checklist of some of the items you should consider when applying for life insurance:
1. Living expenses
How much is your monthly household budget? Consider everything from toiletries and utilities, to rent payment and groceries. Don’t forget annual expenses such as vacations and Christmas gifts.
You’ll still need to pay off your mortgage, car, credit card and those student loans.
Funeral costs can range anywhere from about $5,500 and easily climb up to $20,000 or more.
Even if a household only has one income earner, both parties should consider being insured, especially if they have children. Although one parent may not be bringing home a paycheque, they are almost certainly making significant contributions otherwise. Should that stay-at-home parent pass away, you’ll now have to pay someone to fill that role. Replacing a stay-at-home dad of small children, for example, may require hiring a nanny or housekeeper for thousands of dollars per month. You may also end up wanting to secure a lower-paying but more flexible job to spend more time with your children.
Your circumstances and how you might feel at the time are so hard to predict, “we need to take into account all their expenses,” says Menzelefsky, so you may want to plan for the worst-case scenario.
You should always discuss your specific needs with a licensed insurance advisor
CIBC Term Life Insurance is underwritten by CIBC Life Insurance Company Limited