How much life insurance do you actually need?

Term vs. permanent: what's actually different

Every life insurance policy in Canada falls into one of two buckets. Term life insurance covers you for a fixed period — usually 10, 20, or 30 years — and pays a tax-free death benefit if you pass away during that term. It's built to protect the years your family actually needs your income: while the mortgage is outstanding, while kids are growing up, while debts are still being paid down.

Permanent life insurance (whole life, universal life, or term-to-100) covers you for your entire life as long as premiums are paid, and it builds cash value you can borrow against or draw from. That lifelong guarantee and investment component is why it typically costs 5 to 15 times as much as term for the same death benefit.

For most Canadians in their 20s, 30s, and 40s raising a family or carrying a mortgage, term is the right tool — it maximizes coverage per dollar during the years the risk is highest. Permanent insurance earns its cost in narrower, specific situations, which we'll get to below.

How much coverage do you need? Three ways to calculate it

There are a few common approaches, ranging from rough to precise:

• Income multiple: multiply your annual income by 5–15. Fast, but ignores your actual debts and goals.
• Human life value: estimate the total future earnings your family would lose. More precise, but harder to calculate on your own.
• DIME method: adds up Debt, Income replacement, Mortgage, and Education — the most practical balance of speed and accuracy for most households.

The DIME method, step by step

DIME breaks your need into four concrete numbers you can actually estimate tonight:

Add the four figures together, subtract existing savings and coverage you already have, and the result is a defensible, personalized coverage target — not a guess.

When permanent insurance actually makes sense

Permanent coverage isn't obsolete — it solves specific problems term can't:

• You have a child or dependent who will need financial support for life.
• You're estate planning around probate, RRSP/RRIF taxation at death, or an inheritance you want equalized between heirs — see our estate planning guide.
• You own a corporation and want tax-advantaged cash value accumulation or a funded buy-sell agreement.
• You've maxed out your TFSA and RRSP and want another tax-sheltered place to grow money long-term.

Outside of these, term almost always delivers more protection per dollar.

What term life actually costs in Canada

Term premiums are driven mostly by age, health, smoking status, and coverage amount — which is exactly why rates are lowest when you're younger and healthier, and why "I'll get it later" is the most expensive version of this decision. A policy locked in at 30 will be meaningfully cheaper, for the same coverage, than the same policy bought at 45.

Because pricing varies so much carrier to carrier for the same health profile, the only reliable way to know your real number is to compare quotes across multiple insurers rather than taking one company's rate at face value.

Common mistakes that leave families underinsured

• Relying only on workplace coverage. Group life is usually capped at 1–2x salary and disappears the day you leave the job.
• Insuring the breadwinner only. A stay-at-home parent's unpaid labour (childcare, household management) has real replacement cost.
• Letting a term policy lapse right before renewal, when premiums jump — without checking whether a new term or conversion is cheaper.
• Forgetting to update coverage after a new mortgage, a new child, or a significant income change.

What happens when your term expires

Most term policies are renewable at the end of the term — but at a dramatically higher premium, repriced for your age at renewal rather than the age you started at. A 10-year term taken out at 35 that renews at 45 can see the premium jump several times over, which is why letting a term policy auto-renew without reviewing it first is rarely the right move. The better options, usually, are converting to permanent coverage (if the policy includes a conversion privilege, and before it expires) or applying fresh for a new term policy while you still qualify at good health.

Common riders worth considering

• Critical illness rider — pays a lump sum on diagnosis of a covered condition, on top of the base death benefit, while you're still alive to use it.
• Waiver of premium rider — keeps the policy in force without requiring premium payments if you become totally disabled, so a disability doesn't also cost you your coverage.
• Accidental death benefit rider — adds an additional payout if death results specifically from an accident, though it's often the lowest-value rider relative to its cost.