How Much Life Insurance Do I Need? A Simple Guide for Canadian Families

You've probably heard rules of thumb like "ten times your salary." They're easy to remember, but they ignore what matters most: your debts, your family and your goals. Two people with the same income can need very different amounts. Here's a simple way to work out a number that fits you.

Step 1: Add up what would need to be paid right away

• Mortgage balance

• Car loans, lines of credit and credit cards

• Funeral and final expenses

• Any taxes owing at death, for example on investments or a cottage

Step 2: Estimate the income your family would need to replace

Think about how many years your family would rely on your income, for example until your youngest child finishes school or your spouse retires. Then consider how much of your after-tax income they'd need each year. Your spouse's income and any government survivor benefits reduce this amount.

Step 3: Include future goals

• Your children's education

• Childcare costs if a stay-at-home parent passed away

• An emergency fund to give your family time to adjust

Step 4: Subtract what you already have

• Group life insurance through work (remember it usually ends if you leave your job)

• Existing personal policies

• Savings and investments your family could use

Needs from steps 1 to 3, minus resources from step 4, gives you a starting estimate.

A quick example

Illustration only. Your numbers will differ. Suppose a couple has a $400,000 mortgage, $20,000 in other debts and two young children. They want to replace a portion of one partner's income for about 15 years, set money aside for education, and they have $100,000 of group coverage at work. Working through the steps would likely point to a much larger amount than their group coverage alone, which is common.

Don't forget your partner

A stay-at-home parent may not earn an income, but replacing childcare and household work can be expensive. Both partners usually need coverage.

Review it as life changes

A new baby, a bigger home, a business or a divorce can all change how much you need. A quick review every few years keeps your coverage in line with your life.

Want help with the math? I'll work through your numbers with you for free and compare options from several insurers. Call Matt at 289-880-6364.

This article is general information, not advice for your specific situation.