Start with what the money has to do
Coverage is not a personality test; it is arithmetic with judgment attached. The goal is a figure large enough that your household could carry on without a financial crisis, and not so large that the premium becomes unsustainable.
Work through the items below, total them, then subtract existing resources.
What to add up
- Income replacement — the annual support your household would need, multiplied by the number of years it would be needed
- Mortgage balance, or the rent your family would need to cover
- Other debts: lines of credit, car loans, credit cards, business obligations you have personally guaranteed
- Childcare and household support if a partner would need to reduce work hours
- Post-secondary education costs you intend to fund
- Final expenses: funeral, burial or cremation, probate and estate settlement costs
- A modest buffer for the transition period
What to subtract
The remainder is your approximate coverage gap.
- Existing individual life insurance already in force
- Group life coverage through an employer, understanding it typically ends with the job
- Liquid savings and non-registered investments your family could access
- Registered assets, keeping in mind that tax may apply on death
- Any survivor benefits your household would be entitled to
A worked example
The figures above are illustrative only. Your own numbers will look different, and the point of the exercise is the structure rather than the total.
| Item | Amount |
|---|---|
| Income replacement (70,000 × 10 years) | 700,000 |
| Mortgage balance | 410,000 |
| Other debts | 35,000 |
| Education fund for two children | 80,000 |
| Final expenses | 20,000 |
| Subtotal needed | 1,245,000 |
| Less: group life through work | (140,000) |
| Less: savings and investments | (85,000) |
| Approximate gap | 1,020,000 |
Then sanity-check the premium
A coverage amount only helps if the policy stays in force. If the ideal figure is beyond your budget, common approaches include using a longer term for the core amount, layering a shorter term on top for the years of peak responsibility, or starting at a workable amount and adding coverage later.
Under-insuring at a premium you can sustain generally beats an ideal policy that lapses in year three.
Check the number as life changes
- A new mortgage or a significantly larger one
- A new child
- Marriage, separation or divorce
- A meaningful change in income
- Starting or selling a business
- Paying off major debt, which can mean you need less
Common questions
Is ten times my income the right amount?
Multiples of income are a starting point, not an answer. They ignore your mortgage balance, existing coverage, savings and how many years your household would actually need support.
Should I subtract my group coverage at work?
Count it, but carefully. Group life is usually tied to your job, often a modest multiple of salary, and generally ends when the employment does. Many people treat it as a supplement rather than a foundation.
Do stay-at-home parents need coverage?
Often yes. Replacing childcare, household management and related costs can represent a significant expense that a surviving partner would need to cover.
Keep reading
Written and reviewed by Mathew Cordeiro, a licensed life and health insurance broker serving Ontario through Bluebird Assurance. This page is general information only, not financial or insurance advice. Coverage, features, eligibility and pricing vary by insurer and are subject to underwriting and policy terms.