It's a Myth

There are a number of myths and misconceptions about life insurance. One is that you should only get enough to cover your liabilities.

Cover Your Liabilities....and Your Obligations

Insurance can certainly provide funding to pay off your liabilities when you die, such as your mortgage balance, other debts, and taxes. But what about your obligations? Too often, people look at the lump sum death benefit and think that it’s enough. But if you want to look after your dependents and fulfill your obligations to them, a more careful analysis is required.

Life insurance should also be used to protect your family against the loss of your income when you die. The benefits should be sufficient to replace your income stream so your survivors' present and future needs are met. This may take more money than you think, especially when you factor in inflation.

For example, consider that a $200,000 life insurance death benefit invested to earn 5% will only generate about $10,000 a year in income. For most people that is not enough. To provide for the average Canadian family income of about $80,000, you will need more than $1.6 million in combined insurance and savings, assuming a 5% rate of return.

Review your life insurance coverage to ensure you have enough to cover your liabilities and your obligations, taking inflation into account. Later on, as your needs change, you can always reduce your coverage if it’s no longer required.