How much life insurance do I need in Canada?

With files from Tyler Wade.

This post was originally published on September 13, 2021 and was updated on January 24, 2025.

Life insurance is a necessity when your loved ones rely on you and your income to cover everyday expenses. Yet, figuring out how much life insurance you need can often feel overwhelming.

A 2023 Canadian Insurance Barometer study conducted by LIMRA and Life Happens found that 31% of Canadians – 8.4 million adults -  say they need more life insurance coverage. Additionally, four in 10 Canadians believe their families would face financial hardship within six months should the primary wage earner die unexpectedly. 

So, if you’re wondering whether you have enough life insurance or need more - you’re not alone.

NOTE: While many Canadians may already have coverage through their employer (group life insurance), it often covers only two to three times your annual salary. While a great benefit, it is likely not enough, as we’ll discuss below.

How much life insurance do I need?

There’s no quick answer to how much coverage you’ll need to purchase. Your financial situation likely differs from family or friends, so take time to understand your needs and what you want to get from a life insurance policy.

The first step is to assess whether you need life insurance at this stage in your life. Generally, it is cheaper the younger and healthier you are. However, if you are in your 20s without a mortgage or children, it may not be necessary. Once you have debt and dependents, it’s natural to consider purchasing a life insurance policy.

How do I calculate how much life insurance I need?

You can determine your life insurance needs in Canada in three ways: using the DIME formula, calculating manually, or multiplying 10 times your salary. Let’s explore each option:

1. The DIME formula 

A rule of thumb is to add the sum of your existing debts, income, mortgage payments, and education costs, then ensure your policy covers it all - and more. This is called the DIME formula.

• Debts: How much debt you have. 
• Income: The lost income that would need to be replaced upon your passing.
• Mortgage: The amount remaining on your mortgage payment.
• Education: The total your kids will need for post-secondary learning.

Let's break it down with a real-life example:

Using the DIME formula, the person in this scenario would need $1,590,000 in life insurance coverage for a 20-year term.

2. Manually calculate insurance needs

To do this, add up your financial obligations by answering the questions below:

3. Calculate 10 times your salary

The traditional rule of thumb was to get coverage worth 10 times your annual salary, but that approach is somewhat arbitrary. A better method is to estimate your total salary until retirement. This will ensure your family remains financially comfortable—especially since some of your personal expenses like an extra car, additional food, clothing, or vacations wouldn’t apply anymore.

Let’s assume you’re 40 years old, earning $50,000 per year, and plan to retire at 65. Here’s how the math would work.

25 x $50,000 = $1,250,000. 

Your spouse could likely retire with that amount of money, especially if it's invested wisely and they're safely withdrawing funds at a rate below market appreciation. 

However, this calculation doesn’t consider high-interest savings or investment accounts, such as RRSPs, which you would subtract from the total needed.

To refine your estimate, follow this simple two-step process:

1. Calculate total financial obligations

• • • Multiply your annual income by the number of years you want to replace that income.
    • Add other financial obligations, such as your remaining mortgage, debts, college funds, and funeral expenses.
    • If you’re a stay-at-home parent, include the cost of replacing your daily contributions, such as daycare, cooking, and cleaning.

2. Subtract your liquid assets

• • • Start with the total obligations calculated in Step 1.
    • Subtract your savings, investments, RESPs, and any existing life insurance (like a policy your parents might have purchased for you as a child).

The result is a good estimate of how much coverage you may need.

Additional considerations for buying life insurance

Once you’ve calculated how much coverage you need, there are additional strategies to keep in mind, including: 

Using multiple-term life policies

Buying multiple-term life policies allows you to tailor coverage to your needs for a specific period of time. For example, you could buy a 30-year term policy to only cover what your spouse needs until your retirement. Then, for your children, you might buy a smaller 20-year-term policy to cover expenses like their education.  This strategy will help you avoid overpaying for unnecessary coverage while addressing your family’s specific needs. 

Leveraging group benefits

If you have life insurance through work, the amount you’re covered for is usually two to three times your annual earnings. However, that might not be enough – the Canadian Life and Health Insurance Association says a common amount of coverage is often between five and seven times your current net income. 

While group benefits are valuable, they are limited and tied to your employer. If you decide to move to another company or lose your job, you may lose your coverage. That’s why it is important to consider a personal supplemental life insurance policy to ensure your family is protected, even if your employment changes. It’s better to have too much insurance than not enough to ensure financial security for your loved ones.

How much does a 20-year term life insurance policy cost?

A 20-year term policy is roughly $30 to $60 per month. However, your premium may be lower if you’re younger, in good health, or female, as women generally have longer life expectancies than men.

Remember that the term life insurance quotes you receive will depend on several factors regarding your age, health status, lifestyle choices (like smoking), and the coverage amount you select. 

For the most accurate estimate, we recommend comparing personalized life insurance quotes from different providers to find the best rate for your needs.

The bottom line

Purchasing life insurance is an essential step to financially protect your family in a worst-case scenario. Calculating how much coverage you need varies per person and depends on what you want to leave your loved ones. Consider your current income, outstanding debts, mortgage payments, and education costs to determine the amount of coverage you feel comfortable with. 

To secure the best life insurance quotes, compare providers today using our life insurance calculator.

Also read

• Life Insurance for Kids
• After the Wedding – Insurance
• Life Insurance Mistakes to Avoid
• Term vs. whole life insurance - which one is right for you?