LIFE INSURANCE…Here we go again !

B561DFD6C1853D371CCFDB71649E2FLife insurance

For Daniel Stinson and his wife Brigitte, money is tight. When Brigitte, 34, resigned from her job past year to be a stay-at-home mom to their 14-month-old daughter, Rachelle, she lost the life insurance coverage she had through her employer’s plan. “That got me thinking,” says Daniel, a 36-year-old compensation specialist in Toronto. “We have a mortgage and child costs, so we’re making more critical decisions about what we spend money on. I’d like to avoid paying higher premiums for life insurance as I get older and switch jobs.” For that reason, Stinson is opting out of his group life insurance plan and replacing it with a 20-year term policy with fixed premiums. “Locking in a price now when I’m in my 30s will be more cost-effective in the long run.”

Stinson knows that life insurance is essential if you have a family or dependents who rely on your income. If you die without proper coverage, your spouse and kids may be unable to pay the mortgage or meet daily expenses. The key is getting the right kind, and for most people that’s term life.

With term life insurance you pay a fixed premium that covers you for a specific period—usually 10 or 20 years—after which you would need to renew and face much higher premiums. The other category is permanent insurance—such as universal life and whole life—where the premiums start out higher but stay level throughout your life. Permanent policies are unnecessarily costly for most young families, whose priority should be getting adequate coverage at a reasonable rate.

Start by doing a needs analysis. How old are your children? Would you need to pay for daycare if a spouse died—or if you’re a single parent if you died? “Your life insurance should cover your mortgage and personal debts, as well as replace 10 times your income if you have kids under age 10—five times your income if your kids are older than 10,” says Marr. Stinson, who has a $300,000 mortgage, three kids under 10, and a salary of $100,000 would need a 20-year policy with a death benefit of $1.3 million—minus whatever savings he already has.

If you have a mortgage, you have probably been offered a policy that would pay off the balance if you die. Moore doesn’t recommend these policies: not only is mortgage insurance more expensive (by several hundred dollars a year), but your coverage decreases as you pay down the principal. With term life, the death benefit stays the same over time. “So if you bought $500,000 in term life insurance at age 30 and your mortgage has $50,000 remaining when you die at age 40, your family will get the full $500,000 payment—not just the $50,000 to pay off the mortgage, which is what mortgage insurance would pay out,” says Moore.

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