The starting point

Multiplying your income by a fixed number can give you a rough reference. A more useful estimate looks at who depends on you, what would change, and how long support would be needed.

The aim is to identify a financial gap that insurance could help fill. Two households with the same income can have quite different gaps.

Work out the household support

Estimate the annual amount your household would need after your death. Consider the income that would continue, expenses that would stop, and new costs such as childcare or help at home.

Then choose a support period. A young child's needs may extend further into the future than a short period of adjustment for a financially independent partner.

Think about unpaid work too. Replacing care, transport, and household support can cost money even when there's no salary to replace.

Add the other costs you want covered

Consider a mortgage payoff or reduction, other financial obligations, final expenses, and education contributions. Use amounts that reflect your plans rather than treating every possible cost as a requirement.

For debts, check the agreements and circumstances. Consider what should be settled or protected; don't assume every debt automatically becomes a family member's personal responsibility.

Count each cost once

If you include paying off the mortgage as a lump sum, leave mortgage payments out of the annual household support estimate. If education savings already fund part of an education goal, subtract them from that goal once.

This small bit of housekeeping can make a large difference to the result.

Account for resources already in place

Review existing life insurance and savings you intend to make available for these costs. Check who receives each benefit and what it can be used for.

Workplace coverage belongs in the review, but its continuation may depend on employment and plan terms. Consider the effect of losing that coverage as a separate scenario.

Protect the role of other assets. A home the family needs to live in isn't automatically available cash, and retirement savings may already have an important job.

A worked example

Priya and her partner have two children. This example covers their mortgage, other debts, household support, education, and final expenses.

Their annual support gap of $35,000 allows for the partner's income and excludes mortgage payments, because the mortgage is paid off separately.

ItemAmount
Mortgage payoff$380,000
Other debts to settle$24,000
Household support of $35,000 for 10 years$350,000
Education contribution$60,000
Final expenses allowance$20,000
Total planned needs$834,000
Existing personal life insurance−$200,000
Savings allocated to these needs−$50,000
Additional coverage to consider$584,000

These illustrative assumptions are not typical costs or a recommendation. The calculation excludes inflation and investment returns; a professional review can refine it.

An eight-year support period produces $514,000; twelve years produces $654,000. The assumptions deserve as much attention as the result.

Common questions

Check which kind you have. Mortgage default insurance protects the lender against default. Optional mortgage life insurance generally pays toward the mortgage following an insured death. Account for that payment against the mortgage need, rather than treating it as unrestricted household cash.

Consider what it would cost to replace their unpaid work. Childcare, transport, and help at home can be substantial. The need depends on what your household would actually have to arrange and pay for.

Most amounts received from life insurance following a death are not taxable income in Canada. Income subsequently earned on the money may be taxable, depending on how it is held. Business, estate, and cross-border arrangements warrant individual tax advice.

Smoking does not automatically rule out life insurance, but it can affect eligibility and price. Answer questions about tobacco, nicotine, vaping, and other use accurately. Definitions and requirements differ by insurer and product.

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