How much life insurance do I need?


How much you life insurance you need?

The amount of coverage people choose to get varies widely—it really comes down to individual needs. Some need only minimal life insurance—essentially, enough to cover burial and funeral expenses as well as any outstanding debt. At the other end of the spectrum are those who want their beneficiaries’ living expenses to be completely covered, and for them to be comfortable for many years to come. 

Among Canadians who have life insurance (roughly two-thirds of the country’s households), the average coverage is $200,000, but experts believe this amount falls short of what most people actually need. An oft-recommended ideal amount of life insurance coverage is 10 times your annual net income, but there are a number of factors that could make it advisable to increase or decrease that number. 

Natalie Trimble, financial security advisor and investment representative for Freedom 55 Financial, a division of Canada Life, sees life insurance policies (both term and permanent) ranging from as low as $25,000 up to $2,000,000; the average amount she sees among her clientele is $1,000,000 of term life insurance.

But there’s no ideal amount, she says: “It all depends on the client’s needs—it’s not a one-size-fits-all.” This is where an advisor can be helpful in figuring out a policy that will cover your family’s needs with premiums that you can afford.

“Every client is different: Some want to ensure their family’s priorities are taken care of, some have charitable and philanthropic goals they want to have fulfilled and some have complex business or family situations that require more in-depth fact-finding to determine the optimal amount of insurance required.”

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Let’s do the math together

When calculating how much life insurance you need, many advisors will start with the DIME method. DIME is an acronym that stands for debt, income, mortgage and education expenses. Essentially, an advisor will add together:

Any outstanding debt you have
Your annual net income multiplied by the number of years you expect your family will need to rely on it
The amount left on your mortgage
An estimate of what your kids’ educations will cost