How Much Life Insurance Do You Need? Add Up These Five Numbers

The number most people start with is the life insurance from their job, and that coverage can disappear when the job does. Many group plans give you a short window, often just 31 days after you leave, to convert to an individual policy without a medical exam. Miss it, and you are applying fresh at an older age with whatever health you have by then.

So build the number yourself. The right amount of coverage is the total of a few specific obligations, each with its own dollar figure and its own timeline. A MoneySense report in January 2026 found 24% of insured Canadians lack confidence in their coverage. Writing the figures down is how you find out which side of that line you're on. Add up these five.

1. List every debt at today's balance

Include the mortgage, the line of credit, car loans and any investment loan. People skip the investment loan because it feels like it pays for itself. If you use the Smith Manoeuvre™ or any strategy that borrows against your home to invest, the coverage is what lets your family pay that loan off without selling the house.

Check who owns your mortgage coverage too. Bank-sold mortgage insurance names the bank as beneficiary, and the payout shrinks as the balance falls while the premium stays the same. A personally owned policy pays your family, who then decide what to pay off.

2. Price the income gap after tax

Start with what your household spends to live the way it does now. Subtract what the surviving spouse will earn, then multiply by the years that support is needed. Use after-tax dollars on both sides, since the death benefit itself is generally received tax-free.

This is where the 10-times-income rule tends to fall short for higher earners. It rarely accounts for a second property, private school or the cost of keeping a household running at its current level.

3. Write down the big future costs separately

Education is the obvious one. Count tuition, plus living costs if a child is likely to study away from home. Add anything else you've promised: a wedding, help with a first home, care for a parent.

People fold these into the income figure and lose sight of them. Listed on their own, each one gets a real number and a date it's due.

4. Estimate the tax bill at death

This is the one most people never calculate. Under CRA rules, you're treated as having sold everything at fair market value the moment before you die. The gains on a cottage, a rental property, non-registered investments or shares in your company all become taxable on your final return, unless the assets pass to a surviving spouse, which usually only delays the bill.

Ask your accountant for a rough estimate of those gains today. Your heirs are the ones who find out how much cash the estate actually has. Without enough of it, the estate sells the cottage or part of the business to pay the CRA, on the CRA's timeline. For business owners, a corporate-owned policy can fund this bill, and the payout can flow to shareholders largely tax-free through the capital dividend account.

5. Add final costs, then subtract only what's truly available

Funerals, legal and accounting fees, and the executor's time add up quickly. Manitoba eliminated probate fees in 2020, but settling an estate still costs money. The CPP death benefit is a one-time payment of $2,500, which won't go far.

Then subtract what your family could actually use: cash, TFSAs, and individual coverage you already own. Treat group coverage carefully, for the reason in the first paragraph. Count home equity and business value only if you're comfortable with them being sold.

Look at the five totals side by side and you'll notice they don't share a timeline. The mortgage and income gap shrink over 10 to 20 years, which suits term insurance. The tax bill grows as your assets grow and arrives whenever you die, which is what permanent insurance is built for. Most families with real equity end up with some of each, sized to the number each one has to cover.