How Much Life Insurance Do I Need?

In general, it’s recommended that you have at least 5-7 times your yearly net income (“net” means after taxes are taken out). This would essentially provide 5-7 years’ worth of your annual income to your beneficiaries.

Think about each person who depends on you and how long you might need to provide financial support for that person.

For example—how old is your youngest child? How many kids do you have and do you want them to have the opportunity to attend college or university? Or, is it just you and your partner right now? The more dependents you have, the more coverage you may need.

If you have a mortgage, student loans or credit card bills, what would it take for your spouse or partner to completely settle all these debts? Having money to pay off the mortgage could mean the difference between your spouse having to sell the house or being able to stay.

If you have some group coverage through work or mortgage life insurance, you may be able to subtract these amounts from what you need to buy.

Most group life insurance policies only cover 1-3 times your annual salary, so it’s very likely you do not have enough coverage through work. Plus, if you change jobs, you will most likely lose your coverage. If you’re not sure how much you have, talk to your HR department or check your policy.

If you have savings and investments earmarked for certain future plans—such as a Registered Education Savings Plan (RESP) for your child’s education, you can subtract these amounts from your life insurance needs. You just want to make sure that if your family had to use your savings and investments earlier than planned that it would not negatively impact their plans in another area.

Tip: Review your coverage needs every few years and any time you have a major life event—like a new family member or even an increase in your income.

Buy the amount you can afford now because some life insurance coverage is better than none. You can always add more when you have additional room in your budget.

Also, if you’re interested in permanent coverage, but you can only afford term coverage right now, keep in mind that most term policies give you the option to convert to permanent coverage such as whole life insurance at a future date.