Page 52 - A Canuck's Guide to Financial Literacy 2020

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• Ongoing financial needs such as monthly bills and expenses, day care costs,
education costs, retirement expenses, etc.

Using the 5-step approach below would give you an indication of how much life insurance
one would need approximately.

1. Determine Cash Needs at Time of Death
1. Last Expenses
2. Mortgage Balance
3. Personal Debt Levels
4. Education Funds
5. Other Expenses
2. Determine On-going Income Needs
1. Current Annual Income
3. Calculate the Capital Needed using a Discount Rate
1. Example: Say that you would need $50,000 per income for the next 25
years. Using a discount rate of 5%. (50,000 / 0.05 = $1,000,000)
4. Calculate all Total Assets Available
1. Any Existing Life Insurance
2. RRSP
3. Non-Registered Accounts
4. TFSA
5. Death Benefit
6. Savings
5. Calculate the Additional Life Insurance Needed
1. Add cash needs at death (1) + capital needed to provide level of income (3)
and then subtract current assets available.

Taxation of Life Insurance Plans

• As mentioned, the death benefit is tax free to the beneficiary or estate.
• Policy dividends are not taxable because they're considered a refund of premiums.
• Investment earnings with a policy such as a whole life policy is considered an asset.
The value of the asset is determined by its cash value that has been accumulating.
• The investment accumulated may either be taxable depending if the policy is exempt
or non exempt.

Assuris Protection

Every life insurance company in Canada is required to be a member of Assuris, a regulatory
body that aims to minimize the loss of benefits if an insurance company becomes insolvent.
Assuris guarantees that policyholders will retain at least 85% of the insurance benefit that