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Life Insurance Introduction

Life Insurance Introduction

This calculator approaches coverage with the assumption that you are currently meeting all your financial obligations and saving for retirement with your current income.

This calculator addresses 4 areas that may require life insurance coverage:

  1. Income replacement
  2. Unpaid labour
  3. Household debt
  4. Final expenses

Methodology

Income Replacement:

The replacement incomes are calculated up to the planned age of retirement. Since household expenses will likely change in the event of a spouse’s death there is a provision to factor it as a percentage of income. When determining the percentage of income to insure, the contributions that would have been made to retirement savings should be considered.

Unpaid Labour:

A non-working spouse may be contributing to the financial success of the household by providing services where there is no direct financial compensation. In the event of the death of this spouse, there may be a cost to the surviving spouse to replace these services.

An example could be the cost of child care. A stay-at-home parent may bear most of the responsibility for providing child care. In the event of the death of that parent, the surviving parent may need to pay for child care that was previously provided at no cost.

Household debt:

If a household is meeting their debt servicing obligation with their current income, it follows that the replacement income for the deceased spouse should be sufficient to continue to retire that debt. However there may certain situations where this is not applicable. Therefore, the household debt retirement option is included as a consideration for life insurance. In addition, a surviving spouse may not have a responsibility for the entire debt, and therefore the option of insuring only a percentage of the debt is provided.

Household debt will be added to insurance needs only if the following three conditions apply:

  1. There is a spouse (other dependents will not be responsible)
  2. The income replacement that is desired will be insufficient to retire the household debt.
  3. The surviving spouse wants to retire the household debt or a portion of it.

Final Expenses:

If there are no plans to provide for final expenses through savings or pre-paid expenses the option of insuring for these expenses is provided. The expected costs of these expenses will be adjusted by the expected cost of living.