How much life insurance do you need?

March 11, 2022
By Sun Life Staff

Life insurance is something you don’t buy for yourself. You buy it for the benefit of others. 

When should you think about buying it? Certainly, when you have someone who is dependent on your income. Then the question is: How much life insurance do you need?

The amount of life insurance you need depends on your unique situation. But there are some guidelines to help you figure it out. 

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.

What kind of life insurance is right for you?

Your employer may offer life insurance through your employee benefits. But, it may not be enough. You may want to consider more life insurance. In which case, you have four types to choose from:

1. Term life insurance,
2. Permanent life insurance,
3. Participating life insurance, and
4. Universal life insurance

The right life insurance for you depends on your unique situation. So it’s best to talk to a professional, like an advisor, for guidance. Don’t have an advisor? Find one now.