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Jerry is the kind of guy who goes out of his way to save 50 cents on a jar of peanut butter. For him, flyers aren't junk mail — they're roadmaps to the best deals in town. Jerry likes to comparison shop, and he likes to boast that he never pays more than necessary.
Yet, when it came time to buy life insurance, Jerry was ready to sign with the first company that contacted him. "Life insurance policies are all alike," he says. "Aren't they?"
Not by a long shot. Most Canadians are surprised to learn that one insurance company can charge you $100,000 more than another firm for identical coverage over a 20-year period. Some refuse to sell certain types of policies. Still others lure customers with a low initial premium, only to crank the price through the roof when it comes time to renew their policies.
If Jerry seems familiar to you, that's completely intentional. He's a fictional everyman I've created for the purposes of this article. He's 45, an engineer, married with two children. He is also a homeowner with a mortgage to pay down — a perfect example of someone who needs life insurance. The idea is that by watching Jerry work through the challenges of shopping for the right life insurance policy, you'll learn what to look for when your turn comes around.
How much coverage?
Until recently, neither Jerry nor his wife, Mary, needed to think about life insurance because they enjoyed generous group life coverage through their employers. But you know the saying: the only constant in life is change. First, Jerry quit his job at an engineering firm to become a consultant. Then, Mary was laid off and, rather than pound the pavement for another staff position, she decided to try her hand at self-employment, too. Both are much happier in their new careers, but they miss the protection their group life insurance used to give them.
The first question they need to ask before buying individual life insurance is how much coverage is necessary for them. If one of them were to be hit by a beer truck tomorrow, what will the survivor need to stay afloat and build a new life?
There are two immediate needs. Their insurance must pay off the mortgage, so that the survivor owns the family home outright. And it must generate enough money to pay off any debts the deceased might leave behind. To keep things simple, I'll assume that Mary and Jerry have mortgage life insurance from their bank, which will pay off the house if either of them dies, and that they'll incur no further debts.
Next, they need to come up with an estimate of the survivor's long-term financial needs. Mary and Jerry's lifestyle and goals are built around their two incomes. For example, their children, now 13 and 15, are good students, and the couple has university in mind for both of them. If either parent dies, the survivor would be hard-pressed to foot two sets of tuition bills on a single salary.
The best way to determine how much coverage Mary and Jerry need — or, for that matter, how much you require — is to turn to the Internet. WinQuote is an independent insurance research firm that has put together an online Quick Life Insurance Needs Estimator that's yours to use anonymously and free of charge. And because WinQuote isn't a broker, and it isn't shilling for any insurance company, you won't be bothered by pesky follow-up phone calls or junk e-mail. To use the online tool, click on Quick Life Insurance Needs Estimator and fill in the blanks. You may want to have a few financial documents at hand to help you answer the questions accurately — such as the balance on your mortgage, personal debts and the value of other life insurance policies you may hold.
After plugging their particulars into WinQuote's online estimator, Mary and Jerry found that $300,000 worth of coverage is enough for each of them. Say Jerry dies first. Assuming a modest return of 6% a year, a $300,000 payout will generate $18,000 in annual income for Mary and the two children. Both Mary and Jerry are satisfied that this amount of income, in addition to Mary's own earnings, will more than meet the family's needs.
Depending on your own standard of living, your level of debt and your financial goals, you and your spouse may decide that you need more life insurance coverage or less. But even if you think you've got everything covered, I urge you to try out WinQuote's estimator: it's a fast, free way to make sure you've not overlooking something.
What kind of coverage?
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