Life insurance addresses the financial consequences of premature death. The agent's task is to translate a client's circumstances into a dollar amount of coverage. Four principal needs drive most life insurance purchases:
- Income replacement: replace the earnings the deceased would have generated to support dependants. The amount depends on the surviving family's ongoing expenses and how long they would need support.
- Debt elimination: clear outstanding mortgages, car loans, credit card balances, or business debts so survivors are not forced to liquidate assets.
- Final expenses: cover funeral costs, legal fees, probate costs, and any taxes triggered at death (notably the deemed disposition of capital property under the Income Tax Act).
- Estate equalization and business purposes: in business contexts, fund buy-sell agreements, key-person replacement, or ensure equal treatment of beneficiaries when illiquid assets (a family farm, a private corporation) are left to one heir.
Recall: Name the four principal insurable needs that life insurance addresses. Which need is most relevant when a client owns a mortgage but has no dependants?