How Much Life Insurance Do I Need in Canada?

Posted on June 15, 2019

Covering the financial future of your loved ones takes strategic planning. Apart from developing your estate, life insurance is an excellent way of taking care of your family. But you're still wondering, "how much life insurance do I need?"

If you are asking yourself this question, you are probably looking to join the growing number of life insurance. Let's absorb a few facts observed in Canada.

In 2016, every insured Canadian household owned an average of $400,000 in life insurance protection. The amount represented more than five times the average household income.

Zeroing in on Ontario, the insurance business was worth $48 billion in the same year. The life insurance industry contributed to a whopping 48.9 percent of this figure. This data proves that Canadians have realized the value of life insurance.

Before subscribing to any insurance policy, check whether it’s appropriate for you.

Candidates for Life Insurance

It’s vital to understand what to expect from life insurance. When you have financial dependents under your name, they rely on your paycheck for their needs. You may be responsible for their food, shelter, education, and other essentials like cars and utilities.

If you happen to die, these people can suffer economically. They may not be able to maintain the standard of living they had when you were alive. That is where life insurance comes in.

The policy aims to stand in your place after you are gone. Your dependents receive a payout that sustains their standard of living.

Who Needs Life Insurance?

Many situations compel people to consider life insurance. The most common reason is when one's dependents are likely to miss the support they had after the demise of their breadwinner. If you die, life insurance can replace your paycheck to support your loved ones.

Another circumstance that would necessitate life insurance is when you are likely to leave a considerable debt after your death. If you don't want it paid with the capital of your estate, go for life insurance.

You may also desire to leave your family, charity, or anybody else with an amount that you can't raise. Your life insurance company can devise a true your wishes.

A person’s death can come with several costs such as funeral expenses, probate fees, and taxes. You don’t want to transfer the burden to your spouse or family. Life insurance can settle the costs for you.

The question of purchasing life insurance points to your financial status at the time of your death. Do you have enough to maintain your loved ones, pay debts and expenses, support charities, and so forth? If you are likely to leave uncovered financial obligations, get familiar with the types of life insurance available and buy the right policy.

Determining Your Life Insurance Coverage

How much life insurance do I need? You won't find a straight answer to this question since your situation will be unique. However, some metrics can give you a reasonable estimate.

It depends on your desires and what you can afford. Some pointers like your classification and cost can guide your decision in procuring a suitable policy.


Insurance companies consider some parameters to classify clients during the underwriting process. The rating considers the risks that would require the insurer to pay the death benefit. Some of the aspects they look at include:

Your Age

Older adults usually pay higher rates than younger people. The reason for this is the belief that health deteriorates with age. Therefore, older people are likely to pass away while the policy is active.

Health Condition

Insurance companies ask applicants to undergo a medical examination and provide information about their family medical history. They are also keen to distinguish smokers from non-smokers. The agency can even go for the Attending Physician's Statement (APS) to further investigate your health status.

Your Driving Record

By examining your driving records, the insurance company can determine if you are a reckless driver. They assess the possibility of you getting involved in road carnage. A horrible motor vehicle report can see you pay high premiums.

Your Hobbies

The insurance company is also keen on your hobbies since some are more dangerous than others. Rock climbers, for example, expose themselves to fatal falls. So, they can attract high rates.


The scale of your life insurance depends on the size of coverage you need and the period you want to support it. High amount covers and long term policies have high costs.

Let’s now see how you can figure out how much insurance you need.

How Much Life Insurance Do I Need?

Life insurance looks at you from a financial perspective as a paycheck.  Your demise means lost income. For most people, the take-home pay is the most significant financial asset, and it terminates at death.

When used to cover the financial loss after an insured's demise, dependents use the replacement paycheck to support themselves. But how do you determine the amount that will be enough, or at least reasonable?

The formula we shall discuss here will help you to estimate the lump sum that can support your loved ones for a given period. Consider capital as insurance proceeds pooled in a savings account. Then there is a checking account that withdraws and holds the replacement income every year.

Your dependents live on the funds available in the checking account for that year. Therefore, they can spend the money gradually over the months the way you were providing for them before. The aim is to maintain standards, not to make anyone rich at once.

To come up with a realistic coverage amount, take heed of the following two points.

Percentage of Income

Most people assume that their dependents won't require 100 percent of their paycheck after they pass away. After all, they are not receiving all your monthly income today.

If you are the breadwinner of the entire household, 80 percent may be sufficient. You can reduce the figure to 60 percent for if your surviving spouse has an income.

The Period for Income Replacement

The second aspect to consider is the number of years that you feel are enough to replace the lost income. You can try a range of figures depending on your need assessment for your dependents.

On the higher end, count the number of years from now to the time you expect to retire. Should the worst happen and you die the next day, your loved ones should receive remain supported as usual.

On the other hand, you can look at the ages of your children and estimate when the youngest one should become self-sufficient. If he or she is, say eight, and you think they will be on their own by 22, consider a replacement period of 14 years.

The Financial Consumer Agency of Canada recommends a life insurance coverage worth from seven to ten times your annual salary. According to the body, the coverage can keep your family financially secure.

If you would like a precise amount, consult a financial planner or insurance agency. They should advise on the appropriate type of life insurance and the amount.

Life Insurance Calculator

You can generate a rough estimate of the life insurance you need using a life insurance calculator. The Government of Canada has endorsed a software tool that takes into account several aspects of your financial status.

It first captures costs at death, which include funeral expenses and cost to settle estates such as taxes. It then inputs debts like credit cards and mortgage balances among others.

The calculator also includes the value of your home, other assets, and insurance proceeds. The next field enters the living expenses of dependents and surviving spouse.

Then you need to feed in your spouse’s take-home pay, pension and other benefits, income from investments, and cash. Finally, it prompts for the estimated number of years to support the surviving spouse and other dependents.

When done with the inputs, press the ‘Calculate' button at the bottom and get your estimated amount of life insurance coverage. The calculator takes the difference between total costs and total income.

You can find other life insurance calculators online. However, different developers of such tools focus on various considerations. For instance, a calculator based on the age of children may not work best if you have no kids. When getting your estimates, look for several calculators and select the one that suits your situation.

The Take-Away

How much life insurance do I need? By now, you must have an idea of how to approximate the ideal amount of coverage.

It’s an intricate process with no one-size-fits-all solution. Each person has some unique conditions that make their figure and rates different.

There are assumptions to make in these calculations, such as when your children will be self-reliant. Since you cannot make precise predictions, the amount necessary to protect your loved ones is rarely accurate. However, taking a step towards safeguarding them is noble.

A financial consultant can help you to make wise decisions when deciding the amount of coverage. Seek expert advice before signing a contract with the insurance company.

If you are grappling with decisions on life insurance, contact us today for professional guidance.

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