How Much Life Insurance Do I Need in Canada

When buying life insurance one of the primary questions you need to ask yourself is “how much life insurance do I need?”. With so many options and intricacies to consider, it’s no wonder that many people struggle to decipher the world of life insurance. Luckily there are relatively great ways to find out how much life insurance coverage you need. 

Life insurance brokers use effective formulas to find out the right amount of life insurance coverage you will need to protect your family, and to ensure that your coverage amount can pay off outstanding debts and mortgages. So, if you’re ready to decode the mysteries of life insurance and gain the knowledge to make informed decisions, let’s delve into this guide together. Get ready to take control of your financial security and safeguard your loved ones’ future.

In this article: 

• Do I need life insurance?
• What is a life insurance coverage amount?
  • What is a death benefit
• Why is your life insurance coverage amount important?
• How much life insurance coverage do I need?
• Things to consider when purchasing life insurance
• Finding out how much life insurance I need
• What is the cost for a life insurance policy?
  • Cost of a 10-year term
  • Cost of a 20-year term
• What are life insurance premiums
  • Things that affect your life insurance premiums
  • What are life insurance ratings
• How to save on life insurance
• Frequently asked questions (FAQs) about life insurance coverage

Do I need life insurance? 

It is important to note that not everyone needs life insurance. If you lack family, dependents, debts, mortgages, or a business, it may not be necessary. However, life insurance is crucial for those with family or financial responsibilities, providing benefits such as covering funeral costs, settling debts, funding education, and ensuring financial stability for loved ones. 

Permanent life insurance allows for cash value accumulation, making it useful as an investment vehicle, and retirement income. It also covers you for your whole life as long as premiums are paid. On the other hand, term life insurance offers affordable coverage during vulnerable periods, such as raising children or buying a new house. As such, term life insurance is offered in 10, 15, 20, 25, 30 year terms. 

To determine if life insurance is right for you, ask yourself if your dependents need financial support after your passing, if others rely on you, if you want to pay off your mortgage, save for your kids’ education, leave something for your family or charities, or clear unpaid debts that may burden your loved ones or affect your estate’s value. If you answered “yes” to any of these questions, consider speaking to an insurance broker about purchasing life insurance.

What is a life insurance coverage amount? 

A life insurance coverage amount is the amount of life insurance you are purchasing with your policy for example: do you need a $250,000 life insurance coverage amount or a $500,000 life insurance coverage amount. This coverage amount is an extremely important factor because it determines how much your death benefit is. This amount will also affect your life insurance premiums because the higher the life insurance coverage amount, the higher the premiums. 

What is a death benefit?

A life insurance policy’s death benefit is the lump sum payment made to the beneficiary of the policy when the policy’s insured passes away. This is a payment that is not subjected to taxation. 

Why is life insurance coverage amount important? 

As stated earlier, life insurance coverage amount is important because of the fact that this amount takes into consideration your needs, wants, as well as the prices of your premiums. The life insurance coverage amount is important because you need to determine the right amount of life insurance to take care of your family and your assets if you pass away.

When determining your life insurance coverage needs, several factors come into play. It’s important to carefully consider these factors to ensure that your loved ones are adequately protected financially. Let’s explore some of the key considerations:

• Assessing your financial obligations and responsibilities
• Evaluating your income and future earning potential
• Considering your dependents and their financial needs
• Calculating your outstanding debts and mortgage
• Estimating your funeral and final expenses

How much life insurance coverage do I need? 

Determining the appropriate life insurance coverage amount is a highly personalized process, contingent on your individual financial situation and specific needs. This coverage amount must be enough to cover all the expenses that your family might face in the case of your death. People who do not have too much outstanding debts such as a large mortgage, or those who have older children who are not financially dependent, can purchase a smaller life insurance coverage amount such as $100-400K. But those who have a large mortgage which they still are working towards paying off, and if they have financially dependent children or family members then they might need a larger amount of life insurance coverage such as anything over $500K. The amount of life insurance coverage really depends on what your personal needs are thus it really can depend from case to case, luckily life insurance brokers have multiple ways to calculate the right amount of life insurance coverage for your needs which is based on your financial situation and circumstance.

In the following sections we will be discussing how to find out how much life insurance you need and things to consider when deciding “how much life insurance do I need?” 

Things to consider when purchasing life insurance

Income: Your income is a major thing to consider when purchasing life insurance. Consider how much income you currently make and what your family’s financial situation would be without your income. 

Mortgage: How much of your mortgage have you already paid off, and how much do you have remaining? This is a major question, as mortgaging a home is the most expensive purchase you will ever make. This being said, you want to make sure that your life insurance coverage amount takes into consideration how much you have remaining on your mortgage. The best question to ask yourself is: “Could my family pay off the mortgage if I passed away?”

Post-secondary education: If you have children, a major consideration when purchasing life insurance is finding out how much money will your children need to pay for college or university in the case of your death. Post-secondary education is expensive and when most people enter post-secondary education, they are a young adult who isn’t prepared to take on the entire financial burden of college/university. This being said, it is important for you to consider how much your child will need in order to pursue a post-secondary education even in the case of your death. 

Dependants: Consider the amount of people who are your dependants, of course if you have children who are not financially independent then they are your dependants, but also consider if you have a partner, parents, siblings, grandparents or anyone in your family who might be dependent on you. People who are dependent on you should be considered when purchasing life insurance because you want to ensure that they are protected financially in the case of your death.

Finding out how much life insurance I need

The amount of life insurance coverage you need when purchasing life insurance in Canada will depend on your unique circumstances. To determine how much life insurance you actually need and which life insurance plan is the best for you, we strongly advise that you speak with a life insurance specialist and conduct a needs analysis. The amount of life insurance coverage you require can be estimated in a variety of ways, though.

Times Ten

This is among the simplest ways to determine how much life insurance you require. In essence, multiply your annual income by 10. As an illustration, multiply $50,000 by 10 to get $500,000 ($50,000 X 10 = $50,000). In order to ensure that your family can maintain their standard of living without facing financial instability in the event of your passing, you will need to purchase $500,000 in life insurance. You might want to include an additional $50,000 to $100,000 for each child.

The DIME Formula

The DIME formula is an easy way to find out an estimated amount of life insurance that you might need. This considers the primary bases, such as debts, income, mortgage, and education. The DIME formula is a great technique to use when answering the question: “How much life insurance do I need?” 

Financial responsibility equation 

There is another great way to answer your question of: “How much life insurance do I need” is by doing a very simple equation which can help you find out the estimated amount of life insurance you need. It is simple: Financial responsibilities you want to cover (subtracted by) the current assets that you have (equals) the amount of life insurance that you will need 

What is the cost for a life insurance policy?

When thinking about the prices of policies one of the main question you might ask yourself is “How Much Life Insurance Do I Need in Canada?” Depending on your specific situation, the cost of your life insurance will vary. Obviously, if you have a higher rating, your monthly premium will be higher. However, if you have a standard or preferred rating, you’re in luck. The type of life insurance you want to purchase is another factor to take into account when calculating the cost of coverage. Term life insurance is currently the least expensive type of life insurance policy on the market; it is also capable of providing significant levels of coverage. Even though permanent life insurance is still very common and reasonably priced, not everyone may need it.

How much for a 10 year term?

Let’s take a look at the various prices for a term life insurance policy for a 40 year old male who is seeking a 10 year term, we will showcase the various coverage amounts depending on how much life insurance coverage you want. If you don’t see the chart for the coverage amount you want, click here to find our full article on all the prices for a 10 year term amount! 

$250,000 Coverage

$500,000 Coverage

$750,000 Coverage

How much for a 20 year term?

Let’s take a look at the various prices for a term life insurance policy for a 40 year old male who is seeking a 20 year term, we will showcase the various prices depending on how much life insurance coverage you want. If you don’t see the chart for the coverage amount you want, click here to find our full article on all the prices for a 20 year term amount! 

$250,000 Coverage

$500,000 Coverage

$750,000 Coverage

What are life insurance premiums?

Life insurance premiums are the regular payments made by the policyholder to the insurance company in exchange for the coverage and benefits provided by the life insurance policy. These premiums can be paid on a monthly, quarterly, semi-annual, or annual basis, depending on the policy terms.

Things that affect your life insurance premiums:

There are a number of things that are considered for by life insurance companies when anyone applies to get life insurance coverage. 

To start with the basics, these are the general considerations that will affect your life insurance coverage if you chose to go with a fully underwritten life insurance policy:

• Weight
•  Age
•  Gender
•  Smoking status
• Personal health history

There are a number of factors that also come into play such as:

•  your occupational hazards
•  your traveling habits
•  any hazardous hobbies that you take part in, and more. 

Life insurance premiums can be expensive, especially depending on a person’s individual situation. Check out our blog on tips to secure affordable coverage to protect your loved ones.

What are life insurance ratings?

As part of the application process for life insurance, you will have to go through an underwriting process that will result in you getting a rating. In Canada, life insurance companies use several categories, often referred to as risk classes or underwriting ratings, to assess an individual’s insurability and determine life insurance premiums. The specific categories may vary slightly among different insurance providers, but they generally include the following:

• Preferred Plus: This category includes individuals who are in excellent health and have an exceptional risk profile. They typically receive the lowest premiums.
• Preferred: Individuals in good health and with a favorable risk profile may fall into this category, qualifying for slightly lower premiums compared to the standard class.
• Standard Plus: This category is for applicants with an average risk profile and relatively good health, but not as favorable as the preferred classes.
• Standard: The standard category includes individuals with average risk factors and general health conditions, resulting in standard premium rates.
• Substandard or Table Ratings: Individuals with higher-risk factors, such as certain health issues or risky habits, may be placed in this category. Substandard ratings come with higher premiums than the standard class, and the specific table number indicates the degree of additional charge.

Underwriting is the process an insurer uses to rate you into one of these categories and determine your individual risk factor. Every major life insurance company in Canada has its own underwriting guide, which essentially outlines the evaluation process for applicants.

The underwriting process usually includes a medical exam that looks at the applicant’s medical history as well as the medical history of the applicant’s immediate family. Depending on the amount of insurance, age, and initial investigations, underwriters may ask for a more thorough examination.

Even though the majority of medical exams are simple, it is possible that certain tests, such as blood and urine tests, an attending physician’s statement (APS), and other questionnaires, will need to be completed.

The applicant may receive a rating from the insurer, which has an impact on the policy premiums. The applicant is given a high risk level if the insurer finds that they are in poor health. But there is a fairly wide range that is regarded as normal. The applicant might be given a preferred (lower) rate if their health is better than average. Your eligibility for different insurance plans and the cost of your premiums are affected by these ratings.

How to save on life insurance

With the cost of living projected to get higher and higher in Canada, it is best to save your money any way you can. Life insurance is a great way to protect yourself, but costs money and requires you to pay monthly or annually. These payments obviously add up and must be entered into your budget. Luckily, there are numerous ways to save on your life insurance policy – in fact, you can get a life insurance policy that roughly costs the same as a cup of coffee a day! Here are a couple of things we recommend trying if you are looking to save money on your life insurance policy.

Get term life insurance

As stated earlier, when buying life insurance in Canada, term life insurance is on average much cheaper than permanent life insurance, simplified insurance and guaranteed issue insurance. There are awesome term life insurance products in plenty of different Canadian life insurance companies and all of these have really competitive and affordable premiums if you have a standard or preferred rating. Check out our list of the best insurance companies in Canada!

Buy life insurance when you’re younger 

The younger you are, the better your rating is, thus the cheaper your premiums will be. Age plays a major role in the underwriting process when applying for life insurance. This being said, if you get life insurance coverage at a younger age you will be paying a dramatically lower rate than if you look for life insurance at an older age.

Pay for your premiums annually 

Paying your premiums month to month might be easy, but some insurance companies offer great deals to those who pay annually. Some life insurance companies offer discounts as large as 10% off if you opt to pay annually instead of month to month. 

Work with a life insurance broker

When buying life insurance in Canada, you should really think about working with a life insurance broker! At Protect Your Wealth we offer a completely free life insurance brokerage service. We have free consultations and you don’t pay us at all in the entire process of purchasing insurance. We make getting life insurance an easy process and we are experts in the field. We can showcase the multiple different rates offered by multiple different life insurance companies and then narrow down what is right for you. Purchasing life insurance is a massive decision, make sure that you are working with a professional.

Frequently Asked Questions (FAQs) about life insurance coverage

Find a solution for what you’re looking for

When you ask yourself: “How Much Life Insurance Do I Need in Canada” just know that Protect Your Wealth will help you identify and secure the right life insurance coverage you need to create financial stability and protect your family and assets

To schedule a consultation about your income protection goals, or if you have any questions about life insurance in Alberta, B.C., or Ontario, please contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Alberta, B.C., or Ontario, including areas such as Edmonton, Guelph, Mississauga, and Kelowna.