How much life insurance do you actually need?
Most answers are a multiple of salary. That ignores the mortgage, which is usually the biggest number your family would face on the worst day of their life.
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The short answer
Add the income your household would need to replace, times the years it would be needed. Add the mortgage, other debts, final costs and any education fund. Subtract what you already hold. What remains is the shortfall. Check how much of your cover is group cover through work, because that part ends when the job does.
What your family would need
$1,303,000What is already in place
$215,000A worked example
One household on $85,000 a year, with a mortgage, two cards and a child. These are the figures the calculator opens with.
| Item | Why it is there | Amount |
|---|---|---|
| Income replacement | $85,000 a year for 10 years | $850,000 |
| Mortgage | Cleared, so the family keeps the house | $340,000 |
| Other debts | Cards, loan, car | $28,000 |
| Final costs | Funeral, legal, tax owing at death | $25,000 |
| Education | Set aside for one child | $60,000 |
| Less what is in place | Group $170,000, personal $0, savings $45,000 | $215,000 |
| Shortfall | $1,088,000 | |
What this example is really saying
- 79% of the cover is group cover. If the job ended, the shortfall would rise from $1,088,000 to $1,258,000 overnight, without anything else changing.
- Years of income covered: zero. The $215,000 in place does not even clear the $453,000 of mortgage, debts, final costs and education. The lump sums consume all of it before the family sees a single year of income.
- The mortgage is 26% of the whole need, which is why a multiple of salary misses so badly. Ten times salary would have suggested $850,000 and left the house unpaid.
None of this says buy a policy of $1,088,000. It says the gap is large enough to be worth a conversation, and that most of it sits in two lines, the mortgage and the years of income.
How the calculation works
Two different kinds of money
A life insurance need is not one number, it is two. There are lump sums that must be paid whatever happens, being the mortgage, the debts, the funeral and any education fund. Then there is income replacement, which is what the household lives on afterwards. This tool keeps them apart because the lump sums are paid first, and if the policy only covers those, the family is left with a paid off house and nothing to live on. That is what the years of income covered figure is measuring.
Why group coverage is shown separately
Group life through an employer is usually one or two times salary, and it almost always ends when the job ends. Leaving, being laid off and retiring all end it. Conversion to a personal policy is often available without new medical questions, but the rates are rarely competitive, and the option has deadlines. Anyone whose plan depends mainly on group cover has a plan that depends on staying employed at the same place.
What is not in the number
This tool does not include the Canada Pension Plan survivor benefit or the death benefit, which are modest and depend on the deceased contributor's record. It does not model inflation, investment returns on the payout, or the tax bill triggered by the deemed disposition of assets at death. Each of those moves the answer, which is why this is a starting estimate rather than a recommendation.
What the answer is not
It is not a quote. Price depends on age, health, smoking status, the type and length of coverage, and the insurer. It is not a recommendation to buy anything, and it does not tell you whether term or permanent cover suits your situation. It sizes a gap so that the conversation starts from a real number instead of a guess.
A life insurance death benefit paid to a named beneficiary is received tax free in Canada and bypasses probate. This calculator quotes no rate or government figure, so nothing on this page expires.
Questions people ask
How much life insurance do I need in Canada?
Income to replace, times the years it is needed, plus the mortgage, other debts, final costs and any education fund. Subtract what you already hold. What remains is the shortfall. Rules of thumb like ten times salary ignore the mortgage, which is usually the largest single item.
Does the coverage from my job count?
It counts while you have the job. Group life is typically one or two times salary and it ends when employment ends, whether you leave, are laid off or retire. Conversion to a personal policy is often possible but rarely cheap. Treat it as a benefit of the job, not as your plan.
How many years of income should I replace?
A common starting point is the years until the youngest child finishes school, or until the mortgage is gone, whichever is longer. Ten is a frequent default. The right answer depends on what the surviving household would actually need to do.
Is a life insurance payout taxable in Canada?
A death benefit paid to a named beneficiary is received tax free and bypasses probate. That is why the beneficiary designation matters so much, and why a stale designation can send money to the wrong person no matter what a will says.
What is the difference between term and permanent?
Term lasts a set period, commonly 10, 20 or 30 years, and costs less because most policies expire without paying. Permanent lasts for life and costs more. A need that shrinks as the mortgage is paid down is usually term shaped. Which suits you is a conversation, not a calculation.
Should I include my savings?
Include liquid savings your family could actually reach, such as a TFSA or a non registered account. Leave out locked in pension money, a home you would not want them to sell, and an emergency fund that already has its own job.
Does this calculator save or send my information?
Your figures are stored in your own browser so the tool remembers them next visit. Nothing is transmitted, no account is created, and no email address is asked for.
Where to go next
Monthly Budget Calculator
What a premium would actually have to come out of, once needs, wants and saving are counted.
Open the tool →Coverage Gap Checklist
A printable walk through of what you hold, what it covers, and where the holes usually are.
Get the sheet →What Happens When You Leave Your Job
Group coverage is one of the things that goes. This is the rest of the list.
Get the sheet →Read the longer explanation
The calculator gives you the number. These go into the why.
A number is not a plan. What you already hold is the place to start.
Most people do not know what their group coverage actually pays, whether it ends at retirement, or what the policy they bought years ago still covers. A review reads the documents with you. No product pitch, no cost.