- Are you in a committed relationship?
- Do you have dependents? This could include a partner, children or even parents.
- Do you have a mortgage? How many years are left on the mortgage?
- Do you have outstanding student loans?
- Do you have outstanding debts that could fall to your family to pay after you’re gone?
- Do you want to leave money to charity?
- Do you want the ability to cash out a life insurance policy to make a big purchase in the future?
- Are your kids’ registered education savings plans (RESPs) large enough to fund their education?
- Would your family be OK without your income?
- How much money do you have saved?
If you get the sense from your answers that your loved ones would benefit from a life insurance policy payout if anything were to happen to you, then it’s worth requesting a quote.
We outline the different scenarios of when you should get life insurance—and when you shouldn’t—in another article: Do I really need life insurance?
How much life insurance do you need?
To get the best life insurance for your situation, start by deciding how much coverage you need. This amount determines not only how comfortable your family will be after you pass away, but how much you will pay for your coverage, too.
The average Canadian life insurance policy typically pays out $200,000, but many life insurance professionals suggest this may not be enough to cover your needs. In fact, the rule of thumb is that individuals should have coverage for about 10 times their annual income. The ideal amount is specific to you, your family and your lifestyle.
Here’s a simple calculation that can help you ballpark how much insurance you may need. It is based on the DIME method, which stands for debt, income, mortgage and education expenses.
LIFE INSURANCE POLICY AMOUNT
(Net annual income X number of years you want to provide for family)
Mortgage still owing
Children’s education costs
A more detailed accounting of your assets (what you own) and liabilities (what you owe) can help you determine your current financial state and what you will be leaving behind to your dependents. Calculating the balance between your assets and liabilities can help you figure out whether you need life insurance, and how much coverage you need.