Fact-finds determine client needs

The questions typically include:

• What’s your annual income (for both spouses if applicable)? : Our ability to earn income is our most valuable asset. Without income, there would be no home, car, or investments.
• Do you own your own home and do you have a mortgage? If so, what’s the amount left owing on your mortgage? : If they have their mortgage insurance with a financial institution, make it clear it’s much better to cover their mortgage with personal insurance.
• Do you have any other debts?
• How old are your children? :If both spouses are working outside of the home, typically the income replacement period will be until the youngest child is done post secondary education.
• Do you have group life insurance through your employer?
• Do you have any other personal life insurance?

When performing a fact-find, I don’t include any investment value to reduce the required amount of insurance. These investments usually have a specific purpose – RRSPs are for retirement, not death, and there are tax consequences of using RRSPs to pay for expenses upon death. Life insurance is the best and most economical way to cover this catastrophic event.

There are many different needs-analysis calculators, but to keep it simple, you will typically replace about 70% of gross income. Use a conservative rate of return, say 5% and keep it indexed to inflation, about 2.50%, for a period ending when the youngest child is done post secondary school. This is typically about 20 years.

This number, by rule of thumb, is about 11 times the client’s annual gross income. For a person making $100,000 per year, it takes $1,124,322.73 to replace the needed income back into the household. If they have a mortgage of $250,000, the person’s total need would be just under $1.4 million of coverage.