Life insurance is one of those purchases people put off because it forces them to think about dying. But the math is stark: if you have people who depend on your income and you die without enough coverage, the people you love most face a financial crisis on top of a personal one.
Here is how to calculate your number — not as a rule of thumb, but as an actual figure based on your life.
Who actually needs life insurance
You need life insurance if someone depends on your income or the services you provide:
- A spouse or partner who depends on your income (or vice versa)
- Children who are not yet financially independent
- Parents or other family members who depend on your financial support
- A business partner (for business continuity)
- Anyone who would be left with a mortgage, joint debt, or other financial obligation they cannot handle alone
You may not need life insurance if:
- You have no dependants
- Your assets (savings, investments, home equity) are sufficient to cover all debts and support survivors
- Your children are financially independent adults
- Your mortgage is paid off and you have significant accumulated assets
Method 1: The DIME formula
DIME stands for Debt, Income, Mortgage, Education. Add all four components:
D — Debt (non-mortgage) All outstanding debts your estate would inherit or your family would need to pay: car loans, credit card debt, student loans, personal loans, lines of credit.
I — Income replacement Your annual income × the number of years until your youngest child is independent (often age 18–22). This funds your family’s ongoing living expenses.
M — Mortgage balance The current outstanding balance on your mortgage. This lets your family keep the home without needing your income.
E — Education Estimated cost of post-secondary education per child. In Canada, approximate 4-year university costs (tuition + living) are $60,000–$120,000 per child depending on whether they live at home or away.
Example DIME calculation:
| Component | Example |
|---|---|
| D — Non-mortgage debt | $35,000 (car loan + credit card) |
| I — Income replacement | $80,000 × 20 years = $1,600,000 |
| M — Mortgage balance | $580,000 |
| E — Education (2 children) | $80,000 × 2 = $160,000 |
| Total DIME target | $2,375,000 |
This number is higher than most people expect — and still does not account for a stay-at-home spouse’s value.
For practical purposes, some financial advisors round down the income multiplier (e.g., 15 years instead of 20) if a surviving spouse works or has reasonable earning capacity. The goal is replacing what is needed, not creating a windfall.
Method 2: Income replacement with CPP survivor benefits
A simpler method: multiply your annual income by 10–15, then subtract CPP survivor benefits and existing assets.
CPP survivor benefit (2026):
- Surviving spouse under 65: up to ~$739/month
- Surviving spouse 65+: up to ~$885/month
- Children: flat rate (~$295/month per eligible child)
Example:
- Annual income: $90,000
- 12× multiplier: $1,080,000
- Subtract CPP survivor benefits (~$9,000/year × 20 years = $180,000 approximate PV)
- Subtract existing RRSP/TFSA savings: $120,000
- Coverage needed: ~$780,000
This method tends to produce lower numbers than DIME; use DIME if you want conservative coverage.
Stay-at-home parent coverage
If one partner does not work outside the home, they still provide economically valuable services. Replacing those services if they died would cost:
| Service category | Annual estimated cost (Canada, 2026) |
|---|---|
| Full-time childcare (2 children) | $30,000–$55,000 |
| After-school programs | $8,000–$15,000/year |
| Household management | $15,000–$25,000/year |
| Meal preparation | $5,000–$10,000/year |
| Total replacement cost | $58,000–$105,000/year |
At 10–15 years until independence, this represents $580,000–$1,575,000 in coverage. A $500,000–$1,000,000 policy for a stay-at-home parent with young children is reasonable.
How group insurance fits in
Workplace group life insurance is typically 1–2× your annual salary. On a $80,000 salary, that is $80,000–$160,000. Your DIME calculation shows you likely need $800,000–$2,000,000+.
Group coverage is better than nothing, but:
- It is not enough for most families
- It ends when your employment ends (illness, layoff, resignation)
- Portability at leaving is often expensive or limited
- It does not cover a stay-at-home spouse at all
Calculate your total need, subtract group coverage, and insure the gap with individual term insurance.
Recommended term lengths
| Life stage | Recommended term |
|---|---|
| Young couple, no mortgage, no children | 10 years (review at renewal) |
| New mortgage, young children | 20 or 25 years (covers until children independent + mortgage paid down) |
| Children 10+, mortgage half paid | 15 or 20 years |
| Children over 18, mortgage nearly paid | May not need renewal; review assets vs obligations |
A 30-year term is available and worth considering for parents of very young children who want full coverage through post-secondary years without renewal risk.
Approximate term insurance costs in Canada (2026)
Non-smoker, standard health. Rates vary significantly by insurer and health status.
| Age | Coverage | 20-year term (approx.) |
|---|---|---|
| 30 | $500,000 | $25–$40/month |
| 30 | $1,000,000 | $40–$65/month |
| 35 | $500,000 | $30–$50/month |
| 35 | $1,000,000 | $50–$80/month |
| 40 | $1,000,000 | $80–$130/month |
| 45 | $1,000,000 | $130–$210/month |
Term insurance is significantly cheaper the younger and healthier you are. Buying at 30–35 rather than 40–45 typically saves tens of thousands in premiums over the policy life.
Related resources
- How Much Do I Need to Retire? — The long-term savings picture
- How Much Emergency Fund Do I Need? — The short-term buffer
- How Much House Can I Afford? — Mortgage obligations factor into insurance need