The Frugal Trader|Blogger, The Million Dollar Journey

Posted on August 27, 2014 and updated January 23, 2019 in Life Insurance - What The Experts Own, Life Insurance Canada News 4 min read
million-dollar-journey

The Frugal Trader
Blogger, The Million Dollar Journey

1. What Type of Life Insurance do you own?

My spouse and I have term life insurance through a large national insurance company. Our day jobs also provide term life insurance as part of their benefits package.

2. What factors did you consider when determining the coverage amount?

Life insurance is about financially protecting dependants in case household cash flow is affected after death. So the key question is, who is dependant on my cash flow and how much would they need after my death? Every situation is different. Before we had kids, both of us were working professionals with a modest home. Realistically, we would survive without one of the salaries, providing debts are paid off. In this case, we purchased enough term life insurance to cover our debts, which at the time was our mortgage, student loans, and a car loan.

Fast forward a number of years. Now we have two young children, which means the insurance requirements have changed dramatically. Even though we no longer have any debt, and our assets are higher, our household income dynamic has changed. My wife now works part-time and I work at a steady nine-to-five job in addition to running a healthy side business.

So if I were to pass today, I would assume that my wife would take some time off work, which would reduce some child care costs, but we still have to think about our children’s activities, future education costs, and general monthly expenses. In this case, I would calculate what is required for RESP contributions for both children until they start secondary school and any debt remaining. Then I would calculate monthly expenses for the “X” amount of years required but subtract the income that our existing assets produce.

Our goal is to continue to grow our assets so that we are self-insured. In other words, to grow our assets so that if one of us were to pass away, we would not need insurance to cover our expenses.

3. Do you believe in life insurance for children?

As mentioned above, I believe that life insurance is to protect dependants. As children do not have any dependants, I do not believe it is necessary.

4. What is the biggest life insurance mistake people make?

I think that young people paying for permanent insurance like Universal Life or Whole Life insurance is a mistake. I believe that they can do better by purchasing lower-cost term insurance while they are young, investing the difference with the goal of being self-insured when they are older.

5. Outside of life insurance, what other types of individual insurance are often overlooked?

As life insurance protects dependants against the risk of cash flow disruption after a death, what about a cash flow disruption due to an injury while an income earner is alive? The answer is disability insurance. I believe that anyone with an income and any obligations (such as mortgage, debt, et cetera) should have disability insurance of some kind. Both my wife and I have disability insurance and consider it as essential as term life insurance.

MillionDollarJourney.com is a personal finance blog about a regular Canadian on his journey towards a million dollar net worth by the age of 35 (by the end of 2014). The blog was founded in 2006 with a starting net worth of $200,000. Through hard work, saving and investing, the big million dollar milestone was achieved in June 2014. You can follow the chronicle of his journey on MillionDollarJourney.com, or his regular updates via twitter (https://twitter.com/FrugalTrader).

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