Like those other unavoidable subjects—death and taxes, insurance isn’t something most people want to talk about. Nevertheless, many people wonder whether they’re carrying too little or too much life insurance.

You can easily find a calculator on the Internet that will spit out an estimate. But it won’t take into account all the factors you need to consider.

If you’re like most people, you want to leave enough money to allow your family to maintain their standard of living should you die. To figure out your needs, you have to consider your life situation and goals.

Indispensable protection for your family

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If you have a spouse, a young family, and are carrying a mortgage and other debt, you and your spouse will need life insurance unless, of course, you’re independently wealthy.

But how much? To help you find out, you will have to answer some questions:

  • How much do you owe to creditors?
  • How much does your lifestyle cost?
  • How long do you want to replace your income for?
  • Will your spouse stop working if you die?
  • How much do you want to set aside for your kids’ education?
  • Do you want to leave an emergency fund or money for other purposes like making a contribution to a favourite charity?

How much wealth do you have?

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In calculating your insurance needs, you will also have to look at your current and future net worth. How much equity do you have in your house? How much have you saved? How fast do you expect your wealth to grow in the years to come?

In addition to life insurance, you have to consider the possibility you may become disabled and unable to earn an income. This can occur because of an accident, serious illness or a mental health issue.

In fact, statistics show that it is more likely to become disabled than to die prematurely.  That’s why it’s very important for the protection of your family to ensure you have disability coverage, either through an employer plan, or by buying a private policy.

Your needs change as you get older

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It’s a different picture for those who have grown families and are nearing the end of their careers.

At this stage of life, many people have accumulated a tidy amount of wealth. They’ve paid off their house or are close to doing so. And they’ve put away a good chunk of money for retirement.  At this point, the question becomes whether to reduce your coverage or forego life and disability insurance altogether. You may be able to take care of your family’s needs from the assets you’ve accumulated.

Now, some older people will still need life insurance. They may have debts or want to leave a larger estate than they otherwise could. Some want to leave a substantial final donation to a favourite charity.

A way to cover taxes on your estate

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Other people use life insurance to cover the tax obligations on their estate, so they can leave 100 per cent of their accumulated wealth to their heirs. This normally isn’t a concern when both spouses are still alive because when one spouse dies, his or her assets usually rollover tax-free to the surviving spouse.

However, when the surviving spouse dies that’s when the tax man steps in. The tax department takes its share from the money held in registered accounts—like RRSPs and RRIFs—and capital gains on non-registered investments and recreational properties. It’s to cover these obligations, that some people purchase life insurance.

Another use of life insurance is to help ensure the continuation of a company in the event of the death of a key shareholder or employee.

Talk to you advisor

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The best way to figure out your insurance needs is to sit down with your financial advisor and/or insurance professional. They can go through all the different scenarios and insurance products with you.

Certainly, it’s a good idea for the many baby-boomers who are heading toward retirement and giving up their coverage at work.

You may not like to talk about insurance, but it’s a subject you shouldn’t wait to take care of.