How much life insurance do you need?

How much life insurance is the right amount?

So how much do you need? An advisor can help you to fill out a needs analysis questionnaire to determine the appropriate amount. During this process, they’ll consider things like your:

• annual income,
• net worth,
• debts and
• existing life insurance.

A general rule is you should be covered for at least 10 times your annual income. So if you earn $70,000, you’d be looking at $700,000 in coverage. But every individual situation is different and should be examined as such.

An analysis will help determine what you need the money for, how much you need each month and how long you need it to last. 

Let’s look at an example. Jackie is a 33-year-old married mother of two. She has three goals for her life insurance. She wants money left to her family to:

1. Pay off her $300,000 mortgage.
2. Top up her two children’s registered education savings plans (RESP).
3. Replace her $60,000/year income.

Based on these goals, Jackie is looking at a $1-million policy. If she died her family could spend the money from her insurance payout by:

• Putting $300,000 toward the mortgage
• Adding $100,000 to the kids’ RESPs ($50,000 is the maximum amount you can contribute to an individual RESP).
• Using $600,000 (her annual earnings times 10) to cover day-to-day expenses over the years.

How much do life insurance payments cost per month?

In this example, a $1-million, 30-year term policy for a non-smoking woman in her early 30s, like Jackie, could cost about $80 per month. For a man of the same age, it’s closer to $107 per month.

How long do you need your coverage to last?

For a younger person, or a couple with debt and a mortgage, a 30-year policy may be suitable.

Or, for someone in their 40s with little debt and a small mortgage, a 10-year policy might be right.