Part one

Income replacement needs

Start with a simple analysis that assesses your income replacement needs. Answering a few simple questions will help you:

What is your annual earned income after tax, including both base pay and any incentive compensation?

Why are we asking for after tax income? This “net income” is what your household is using to support your lifestyle and long term savings goals. Plus, life insurance death benefits are generally paid tax-free to beneficiaries.

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What is your current age?

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At what age do you anticipate to retire?

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What percentage of your income do you want to replace?

When deciding what percentage of income you want to replace it’s important to consider other sources of income your family would be entitled to upon your death (for example, CPP survivor and children’s benefits) and if you expect the household expenses would decrease. Generally, it is recommended that you replace 70% or above of your income.

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What is your assumed rate of return?

Generally, it is recommended that a low risk rate of return (3-5%) is assumed when addressing income replacement needs.

3%

4%

5%

Part two

Lump sum needs

This part will assess your lump sum needs on death. To calculate your lump sum needs, add the following amounts:

Balance of any debts outstanding, that you want to ensure are paid to $0.00 in the event of your death

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An estimate of your final expenses. Examples may include: funeral, legal and accounting fees.

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Any other lump sums needs for planned financial goals. Some examples might be charitable giving, gifts, children’s education, etc.

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Part three

Putting it all together

Now, we'll assess the total amount of coverage required and deduct off any existing insurance coverage and any assets that can be liquidated to meet the need.

Enter all of your existing life insurance coverage. Don’t forget to include: personally owned policies, group life insurance policies from your employer, creditor insurance policies, or other plans such as funeral expense plans.

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Enter any assets that can be liquidated on your death that would not be needed by your survivors for another purpose.

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