April 14

Why Term Life Insurance is usually ideal for young families

Life Insurance

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Why your family needs income protection

If you have a family, especially if you are just starting out, you know how important responsibility it is to make sure your family is financially secure. That’s why you should consider looking into a term life insurance solution by contacting an independent family insurance broker.

Your family relies on your income and possibly the income of your spouse or partner for their livelihood. If that income continues to flow in, then the family will be able to thrive and grow. But if something happens to your health like an injury, life threatening illness, or even worse death, your family’s future is in jeopardy. 

Doing right by your family can often mean making long term investments to create wealth and prosperity. These can take the form of owning a home, often, with a large mortgage. A home is usually our largest purchase, our largest asset, and our largest liability. Will your family be able to make the mortgage payments if you pass away and they no longer have your income?  If they can’t make the payments on time, will the bank take their home away from them? 

You need to think!

Will our loved ones be able to pay for funeral expenses if we were to die prematurely? Or will they be forced to use credit cards and pay high interest to make up the difference. Are we leaving debts behind that could burden our loved ones if we were to pass?

Would the plans that you have for your family’s future such as paying for your children’s education be possible if your income was no longer around?

How would your family’s life change from a financial standpoint if you passed away and your income was not protected?

Should your family even have to worry about bills, and finances, when they should be mourning your loss?

These are all very important questions that leaders of responsible young families must ask themselves if they want to ensure that their families remain financially stable. Whether we want to admit it or not, this could be a huge problem that could permanently alter the destiny of our family if it is not dealt with.

How Term Life Insurance can be used to resolve this problem

Young families often have a lot of liabilities in the form of large debts, such as mortgages, credit cards, car loans, etc. In order to cover those liabilities if we die we need a family life insurance policy that will pay a large death benefit. 

Also, because we are young and earning money regularly, replacing that income for 10 years or until the age of 65 is also going to require a large tax-free benefit to be paid out when we pass away. 

Certain forms of insurance such as permanent life insurance or whole life insurance require a large monthly investment in the form of premiums to keep in force. Young families will often need over a million dollars worth of family life insurance coverage. And to own that much coverage if we were using a policy such as Whole Life would not be feasible for most Canadians. 

On the other hand, term life insurance is the ideal solution for our predicament. It is very affordable, the premiums will never increase until the term is expired (which can be decades later), and the death benefit can be millions of dollars paid out tax free lump sum to your family if need be.  Family life insurance steps in when you no longer can, to make sure your family has what it needs to prosper. Usually at a time when they need it most.

In fact, term life insurance is so affordable that I truly believe that it would be irresponsible for a young family to not have one or both heads of the family covered (both partners).

For a small monthly premium, you can rest assured that your family’s financial stability is virtually guaranteed. A large tax-free death benefit will be paid to your family if you or your spouse pass away. That money can be used to pay off the mortgage, replace your income for years, pay off all your debts, pay for funeral expenses, and your kids college education.   Basically, provide everything that your income was supposed to be providing had you not passed away making it an ideal solution.

You can sleep soundly knowing that your family won’t have to declare bankruptcy or have their house foreclosed on if you are not around. Term family life Insurance can’t replace you but it is designed to replace your income and to do it in a way that is very affordable.

How much does Term Life Insurance cost?

Term life insurance is the most in-expensive way to own family life insurance. This is because if you have a young family you are probably relatively young and in good health. Term life insurance will increase in cost after the term finishes but that can be decades from now when your family’s liabilities have decreased, and perhaps you have been able to save more money to deal with emergencies or unexpected events. At that point, the coverage can be reduced because it is no longer needed or the policy can be converted to a more permanent policy with a level premium.

In order to calculate the monthly investment to own a term life insurance policy, we must first determine how much insurance coverage we need.  The best way to do this is to get in touch with an insurance broker who will do a proper insurance needs analysis for you.

To give you a baseline formula to calculate how much term life insurance you need follow these three steps:

  1. Add up all your liabilities including mortgage, car loans, credit cards, and any other debt (to leave your family debt free).
  2. Take your after-tax income and multiply it by 10 (to replace your income for ten years)
  3. Add $15000 for funeral expenses and $50000 for each child that you have (to pay for their college education

Let me give you an example:

Jonathan is a 35-year-old male, who doesn’t smoke, and is in reasonable health.  He makes $50,000 a year after taxes and is married with 2 kids. He and his wife owe $5000 on their credit cards, and $10,000 on car loans. He also owes $400,000 on his mortgage.

Based on our formula he would need:

  1. $415,000 to pay off his debt’s and mortgage
  2. $500,000 to replace his income for 10 years
  3. $115,000 to pay for his children’s educations and his funeral expenses

An adequate solution would need to have at least $1,030,000 of mortgage protection life insurance. This would allow him to secure a paid off home for his family, replace his income for 10 years, and pay for his children’s education if he was to pass away. Once this life insurance policy is put in place, he will know that his family won’t have to worry about their financial stability.

The table below shows what the premiums would be:

                                                                20-year Term Life Insurance

35-year-old Male                               $50/month

35-year-old Female                          $46/month

It is also important to select the appropriate life insurance term based on your specific situation. This example is for a 20-year term life insurance policy. The premiums could be even more affordable if we shorten the term of the policy. These figures are not exact and everyone’s situation will be different, but this is meant to give you an idea. If you are younger than 35 years old the premiums may be less, if you are older, or have health issues the premiums could be more. But no matter what the premiums will generally be quite manageable.

To reduce the cost of the premiums there are two things that we can do. We can either reduce the coverage or reduce the life insurance term. Reducing the life insurance term will change the renewal date of the life insurance policy after which premiums will rise. The key is to select the appropriate life insurance term and coverage for your situation.

How can I put Term Life Insurance in place to protect my family?

Now that we know how critical it is to own term life insurance and how inexpensive it is,  we need to figure out how to put this in place.  Fortunately, this is the easy part. All we have to do is get in touch with a licensed family insurance broker.

A good family insurance broker will complete an insurance needs analysis to help us determine how much insurance is needed. They will then complete a health and lifestyle evaluation to make sure we are not missing something important before recommending the right insurance solution. This will ensure that we are applying for the right type of coverage with the right type of insurance company. 

Once that is done, the family insurance broker will help you complete an insurance application, after which their may or may not need to be a medical exam (term life insurance can also be obtained with no medical exam) depending on your unique situation and the amount of insurance applied for. Once approved the policy will be delivered to you and you can rest assured that your family’s financial future is safe and sound, even if you were to die.

If you are a young family with no life insurance in place at this time, book an appointment to speak with a family insurance broker now so that they can help you design a proper insurance solution. With the affordability of term life insurance, there really is no reason to take chances with your families well being. 

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