“How much life insurance do I need?” is one of the most common questions Ontario families ask — and the honest answer is: it depends on your family, your debts and your goals. The good news is that you don’t need a complicated formula to get a solid starting number. This guide walks you through a simple four-step method you can do at your kitchen table.
Why the right amount of life insurance matters
Too little coverage can leave your family selling the home or draining savings. On the other hand, too much coverage means paying premiums you don’t need. The goal is simple: enough money so the people who depend on you can keep living their lives if you’re no longer there.
Step 1: Add up your debts
First, list everything your family would still owe:
- Your mortgage balance
- Car loans and lines of credit
- Credit card balances
- Any other personal loans
For most families, the mortgage is the biggest number on this list. Paying it off means your family can stay in the home.
Step 2: Replace your income for the years your family needs it
Next, think about how many years your family would need your income. For example, if your youngest child is 5, you might want to cover the 15–20 years until they’re independent. A common rule of thumb is several years of after-tax income, but your own number depends on your partner’s income, your lifestyle and your children’s ages.
Step 3: Plan for future goals
Then add the goals you’d still want to fund, such as:
- Your children’s education — a registered education savings plan (RESP) helps, but may not cover everything
- Childcare costs if one parent would need help at home
- Final expenses, which can add up quickly
Step 4: Subtract what you already have
Finally, subtract the money your family could already count on:
- Existing life insurance, including group coverage through work
- Savings and investments, such as RRSPs and TFSAs
- Any other assets your family could use
Remember that group life insurance through an employer is often limited — commonly one or two times your salary — and it usually ends if you leave your job. That’s why many families add personal coverage on top.
A simple example
Here’s an illustration only, not a recommendation. Imagine a couple in Ontario with a $450,000 mortgage, two young children and one main income. If they add their debts, ten years of the main earner’s after-tax income and education goals, then subtract savings and group coverage, they might land on a need of roughly $900,000 to $1.2 million. As a result, a 20-year term policy could be a cost-effective way to cover those years.
Your own number will be different. That’s why a proper needs analysis matters more than any rule of thumb.
Term or permanent: which type fits?
Term life insurance covers you for a set period, such as 10, 20 or 30 years, and is usually the most affordable way to get a large amount of coverage. Permanent life insurance lasts your lifetime and can build cash value, so it’s often used for estate planning and final expenses. Many families use a mix. Learn more on our life insurance page.
Get your number in one conversation
If you’d rather not do the math alone, book a free, no-obligation needs review. We’ll go through your debts, income and goals together, compare options from several Canadian insurers, and explain everything in plain language.
This article is general information, not personal insurance, tax or legal advice. All coverage is subject to the insurer’s underwriting approval. Rajesh Vaghela is a licensed insurance agent in Ontario (licence no. 26245978) and an independent associate of World Financial Group (WFG).