By Dwight@RateSupermarket.ca

I’m terribly sorry to break it to you like that, but facts are facts. There is a very good chance you are not going to get out of this lifetime alive.

And nobody knows how or when their time will come. Some live long, healthy, wonderful lives, slipping away while in a peaceful sleep, while others suffer more unexpected deaths.

The only control we truly have is what we leave behind, whether we’re 32 or 102 when we cash in our chips.

That’s why life insurance is such an important part of life planning, especially in your early years of adulthood, when debt load is often the highest – when you are most likely to have high university, credit card, vehicle and mortgage debt.

If you die unexpectedly, you are not off the hook for the debt you have piled up over your lifetime. If you have a spouse or dependents, the responsible thing to do is to purchase life insurance to ease the burden on your grieving family, because at such a tragic time the last thing your loved ones need to be doing is worrying about how the mortgage is going to get paid.

There are two ways to determine how much you want your life insurance policy to be for, said Chris Karram, a life insurance broker with SAFEBRIDGE Financial Group.

“The first is more of the old school way of doing things, and simply involves defining how much income one would want to replace for their family, if something happened to either spouse,” Mr. Karram told RateSupermarket.ca.

Once that number is clear, simply work backwards to determine how much capital is required to provide that kind of income for life, assuming a reasonable return of 5% to 6% annually. That figure then becomes the amount of life insurance you need.

The second way, Mr. Karram said, is to do a complete ‘financial needs analysis’.

“This process is a little more involved and will look at issues beyond just your income,” Mr. Karram said.

“You will need to know how much debt is currently outstanding, how much you’d like to put away for your child’s education, whether you’d like to give a gift to charity or family, and so on,” he said.

Doing the financial needs analysis allows you to define exactly how long you would like your income to last after you’re gone. If you feel your benefactors will only require 10 years of your salary to live comfortably, then purchase accordingly.

The financial needs analysis is quickly becoming the norm in the life insurance industry because people want to make sure their loved ones have a guaranteed, specific amount of income that will not only pay off their short- and long-term debt, but also set them and their family up for a pre-determined length of time.

The process to obtaining life insurance is fairly straight-forward. Once initial contact is made with a broker, and early details are ironed out, an application process – which normally includes a short health exam – will begin. Being completely honest when applying for life insurance is absolutely key, Mr. Karram said.

“Very few people are ever declined outright for coverage, but misleading or lying on an application can, and most often will, lead to a claim being denied in the future,” he said.

So if you’re a smoker, tell your broker. If genetic heart disease runs in your family, check that box on your form. If you don’t, your family may pay the price if your lifestyle or heritage catches up to you.

Otherwise, there are few risks to life insurance, Mr. Karram added. If you provide the insurance company with proper – and true – information, your policy will cover you for just about anything and anywhere. But criminals need not apply – most life insurance companies will not pay “if the insured is killed in the commission of a criminal activity”, Mr. Karram said.

“For most people that shouldn’t be an issue. Otherwise, how you die is not as important as long as the insurance company had all of the relevant information they needed prior to their approval of your new policy.”

Life insurance provides a tremendous amount of flexibility and options, which is why it can seem so confusing to some, Mr. Karram said. Depending on what kind of policy you own, you can – on occasion – opt to take a premium holiday depending on how long you have owned the policy. This is not an option available on all policies, so be sure to confirm with your advisor if that is something that exists with your specific policy.

“If you happen to miss a premium payment due to insufficient funds or something else, you generally have 30 days to make that payment back to the insurance company and maintain the current ‘in force’ status of your policy,” the SAFEBRIDGE Financial Group broker said.

“If you are unable to do so, your policy will lapse on Day 31, however you will have a six month window to ‘reinstate’ your policy with the identical terms from when you set it up.”

This relates to your death benefit, premium, policy date and beneficiaries. The catch here is that you will be asked to make up the premiums missed as far back as six months, which can be a daunting task for some, Mr. Karram added.

Nobody likes to think about death. We all envision ourselves enjoying our twilight years to the fullest, but unfortunately, the unforeseen happens every day. Research a life insurance policy that works for you, contact a broker and protect yourself and your family should the unthinkable happen.

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4. RateSupermarket.ca Now Compares Term Life Insurance Products
5. Mortgage Insurance 101

Tags: financial needs analysis, financial planning, Life insurance, Life policy, life premium