How Much Life Insurance Do I Need

How to Navigate How Much Life Coverage You Need

June 30, 2023

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Life insurance is a financial asset you purchase to ensure that your loved ones and dependents would have a sizeable cash amount left behind to them to either maintain their standard of living, fund their education, or pay for specific debts (like a mortgage.) It’s something you buy for your loved ones, so that even when you’re long gone, they can continue life in spite of you no longer be around to directly care for them. It’s a morbid thing to think about, when you really put some thought into it, but life insurance is a rather selfless gift that can also put your mind at ease.

But how much coverage do you need? With any insurance policy, whether that’s life or home insurance, you need to address just how much coverage you need. How much do you need your life insurance to pay out in the event of a qualifying event (i.e., your death?) It’s not an easy number to figure out on the spot, as you’ll really need to put some genuine thought into what expenses will need to be covered in your absence, and how much money will be needed for those expenses.

Consider the following items while you determine your overall life insurance needs:

Your existing mortgage.

A mortgage is one of the very popular reasons why people purchase life insurance. Whether you’ll have your mortgage for the next 10, 20, or 30 years is something to consider in your life insurance needs. Consider how much of your mortgage is still outstanding.

Your final expenses.

Funerals in Canada can range vastly in expenses, from as little as $1,000 to as high as $20,000. The average cost for a funeral in Canada is about $9,000, which is still no small amount. You’ll want to consider what your arrangements would be prior to your death, so your surviving loved ones aren’t left behind to figure out appropriate arrangements for themselves or spend more than they need to.

Your outstanding debts.

If you have any credit card debt, car loans, leases, student loans, or other outstanding debts, consider those in your life insurance coverage amount as well as those debts may pass onto your heirs upon your passing (if they are not paid off in your lifetime.)

Monthly expenses.

Consider how much monthly income you bring in for your family, minus what your spouse does. If you bring in no income but are a stay-at-home caregiver, you should assume that your spouse’s income may change based upon the need to pay for a replacement caregiver to sub your duties if you should pass. Also, consider with this amount how many years your dependents would still need this care/or monthly income and how long they would be financially dependent.

Your children’s education.

Consider how much longer your children will be in school, any post-secondary, if they plan to go away to study, and how much that would cost. Some post-secondary options in Canada will cost upwards of $96,000 for a four-year university degree – so make sure to take that into account.

Estimated inflation.

Account for inflation in your final calculation/life insurance coverage needs determination, as well! Currently, inflation rates are around 2%, so you may wish to choose this just to be a bit more conservative. Inflation causes insurance rates to rise, so note that your premiums may be impacted.

Consider your savings and investments.

This last point is tricky, since you might just want to consider this amount as nothing (as your spouse or partner could likely use it for their own retirement.) But, if your spouse has a pretty good pension plan or significant savings of their own, you can take this amount into account and reduce your overall need by however much your savings and investment earnings adds up to.

Many life insurance carriers and quote forms have life insurance calculators, which you can input all of these estimates into to finalize a total, rough amount. It will then provide a coverage amount that will pay off all your existing debts, plus what your family would need for daily expenses (and even some additional for emergencies and supplemental cash.) You may also choose to purchase life insurance for a spouse, at what point the calculations would be roughly similar.

Of course, this isn’t a surefire, 100% accurate method. Talk to an Excalibur Insurance Defender about what kind of insurance coverage would be best for your situation and would be easiest on your budget. You might also want to ask for their advice on term/permanent insurance and which might fit your needs best. We’re happy to go over your insurance needs with you and find you an amount that can put your mind at ease, plus advise you on which “type” of insurance you may need.