The four numbers
- Income to replace. Your yearly income multiplied by the number of years your family would need it. Until the youngest child is independent is a common choice.
- Debts to clear. The mortgage balance, plus car loans, lines of credit and credit cards.
- Future costs. Money for children's education, and final expenses such as a funeral.
- What you already have. Savings, investments, and existing life insurance, including coverage through work.
Coverage to consider = (1) + (2) + (3) − (4).
A worked example
A couple in Brampton with two children, aged 4 and 7. One partner earns $85,000 a year. They owe $520,000 on the mortgage and $25,000 on a car loan.
| Item | Amount |
|---|---|
| Income to replace: $85,000 for 10 years | $850,000 |
| Mortgage and car loan | $545,000 |
| Education fund for two children | $80,000 |
| Final expenses | $15,000 |
| Total need | $1,490,000 |
| Less savings | −$60,000 |
| Less group life insurance through work | −$170,000 |
| Coverage to consider | $1,260,000 |
Rounded, that is about $1.25 million of coverage on that partner. The other partner needs their own calculation, even if they earn less or stay home, because replacing childcare and household work costs money too.
This is an illustration of the arithmetic, not a recommendation. Your numbers will be different. The calculator runs the same sum with yours.
Is "ten times your income" a good rule?
It is a quick check, not an answer. It ignores your debts, your savings and how many people depend on you. In the example above, ten times income gives $850,000, which would leave the family about $400,000 short.
How often should I review the amount?
When something big changes: a new mortgage, a child, a higher income, a paid-off debt, or a new job with different group benefits. Otherwise, every couple of years is enough.
Common questions
Should I count my group insurance from work?
Count it, but do not rely on it alone. It ends when the job ends, and replacing it later costs more because you will be older.
Should a stay-at-home parent have life insurance?
Yes. If they died, the family would have to pay for childcare and household help. Estimate that yearly cost and the number of years it would be needed.
Do I need less insurance as I get older?
Usually. As the mortgage shrinks, savings grow and children become independent, the gap gets smaller. That is why term insurance, which ends when the need does, fits most families.
What if the amount I need costs more than I can afford?
Start with what fits your budget and choose a policy that lets you add coverage or convert later. Some coverage now is better than the full amount never.
Sources
Written and reviewed by Sandeep Singh Pawar, licensed life insurance agent in Ontario. Last reviewed .