Ask the internet how much life insurance you need and you will get a number: ten times your income. It is not a terrible starting point. But it is a rule of thumb built for an average family that does not exist, and I have rarely seen it produce the right answer for a real one.
A family with a paid-off house and no children needs far less than that. A family with a large mortgage, three young kids and one income needs considerably more. The rule cannot tell the difference. Here is the calculation that can.
The method: add up obligations, subtract what you already have
Life insurance exists to replace what disappears financially when you do. So the question is not "what number sounds right" — it is "what would my family actually need to be alright?" That breaks into four parts.
1. Debts that would need clearing
Start with the mortgage — usually the largest single figure, and the one most families most want dealt with. Add car loans, lines of credit, credit card balances, and any business debt you have personally guaranteed. The goal is that your family is not serving debt on a reduced income.
2. Income your family would lose
This is the biggest and most-underestimated component. If your household depends on your income, that income needs replacing for as long as the dependency lasts.
A workable approach: multiply your annual income by the number of years your family would need support. For a parent with a newborn, that might be twenty years until the child is independent. For someone five years from retirement with grown children, it might be five. This is where the "7 to 10 times income" guideline comes from — it approximates a working lifetime — but doing it explicitly is far more accurate than accepting the multiple.
3. Future costs you intend to cover
Post-secondary education is the common one. Childcare is the one people forget: if a stay-at-home parent dies, the surviving parent may need to pay for care they previously provided, which can run to tens of thousands a year. Include final expenses too — a funeral in Canada commonly runs several thousand dollars, and it lands at the worst possible moment.
4. Subtract what already exists
Now reduce the total by existing resources: group coverage through work, any individual policies you already hold, and liquid savings your family could genuinely draw on. What remains is your actual gap — and that is the number worth insuring.
A worked example
Take a couple in Mississauga, both 38, with two children aged 6 and 3. One earns $95,000, the other $55,000. They have a $420,000 mortgage remaining and $18,000 on a car loan. The higher earner has $150,000 of group coverage through work.
For the higher earner:
- Mortgage and car debt: $438,000
- Income replacement — $95,000 for roughly 7 years while the children are dependent: $665,000
- Education for two children: $80,000
- Less existing group coverage: −$150,000
Total: approximately $1,033,000. In practice we would round to $1,000,000 of coverage.
Notice that "ten times income" would have suggested $950,000 — close, in this case, almost by coincidence. Change one variable — no mortgage, or a stay-at-home spouse, or a child with additional needs — and the two methods diverge sharply.
Don't overlook the lower earner
Households routinely insure the primary earner well and the second earner barely, or not at all. That is a mistake, and it is worse when one parent is at home full time.
If the parent providing childcare dies, the surviving parent faces a stark choice: pay for full-time care, or reduce their own working hours. Either outcome costs real money at exactly the moment income is under strain. The economic value of unpaid caregiving is genuine even though no salary reflects it.
Why group coverage isn't enough on its own
Employer coverage is a real benefit and worth having. But it has three limitations people discover at the wrong moment.
It is usually modest — often one or two times salary, which rarely closes the gap calculated above. It ends when the job ends, and it ends precisely when you are between jobs and least able to replace it. And it may become harder to replace later: if your health changes while you are covered by a group plan, you may not qualify for individual coverage when that plan disappears.
The practical answer is not to abandon group coverage but to treat it as a supplement — a layer on top of a personal policy you own and control.
How long should the coverage last?
Match the term to the obligation. If the need is a 22-year mortgage and raising young children, a 20 or 25-year term aligns well and costs a fraction of permanent coverage. If the need is genuinely lifelong — supporting a dependent with a disability, covering estate taxes, or leaving a guaranteed legacy — permanent coverage is the appropriate tool despite the higher premium.
Many families end up with a sensible mix: a large term policy covering the high-need years, plus a smaller permanent policy that never expires.
One reason not to delay
Life insurance is priced on age and health, and both move in one direction. The same coverage costs meaningfully more at 45 than at 35, and a diagnosis in between can change your options entirely. This is not a scare tactic — it is simply how underwriting works. If you have been meaning to sort this out, the cheapest day to do it was some time ago, and the second cheapest is today.
If you would like the calculation done properly against your actual numbers, that takes about twenty minutes and costs nothing. I would rather you had the right amount of coverage than a number you picked from an article — including this one.