How much life insurance does a Canadian family need?

• Start from obligations and dependants, not from a rule-of-thumb multiple of salary.
• Group coverage through an employer is usually limited and ends when employment ends.
• Include the economic value of unpaid work such as childcare when a partner is not employed.
• Recalculate after a birth, home purchase, business change, separation or inheritance.
• Coverage needs usually decline as debts are repaid and children become independent.

Total the immediate needs (funeral and final costs, taxes owing at death, outstanding mortgage and consumer debt), then the ongoing needs (annual household income to replace, multiplied by the years it is needed), then future lump sums (post-secondary education, a special-needs trust). Subtract liquid assets, existing individual and group policies, and any survivor benefits available.

Employer coverage is often one or two times salary, is not portable if you change jobs, and may be reduced or removed at retirement. Individually owned coverage stays with you regardless of employment and locks in your health status at the time of underwriting.

Households frequently split the total across policies with different terms so coverage steps down as obligations end. This can be more cost-efficient than one large permanent policy, though it leaves no coverage after the final term unless a permanent layer is included or a conversion privilege is exercised.

A family with a $450,000 mortgage, $20,000 of other debt, $25,000 of estimated final costs, a need to replace $60,000 of annual income for 15 years, and $100,000 earmarked for education would identify roughly $1.495 million of need. If they hold $150,000 of group coverage and $200,000 of liquid savings, the gap is about $1.145 million. The figures are illustrative; your own numbers, taxes and benefits will differ.

• Insurers apply financial underwriting limits — you cannot buy an unlimited amount relative to income.
• Survivor benefits from CPP are modest and should not be assumed to replace household income.
• Health changes between quotes and issue can affect price or eligibility.
• A needs analysis is educational; a licensed advisor should review your specific circumstances.

• Life insurance — consumer guidance — Financial Consumer Agency of Canada
• Life and health insurance in Canada — industry resources — CLHIA
• Canada Pension Plan and Old Age Security — Government of Canada