Your Group Life Insurance Probably Covers One Year of Salary: What Happens After That

A 38-year-old software developer in Mississauga carries $95,000 in group life insurance through her employer. She has two children, a $680,000 mortgage with 22 years remaining, and annual daycare costs of $28,000. If she died tomorrow, the payout would cover roughly 16 months of her current obligations before running out.

Group life insurance in Canada is structured as a multiple of salary because salary is what the employer knows. Most basic plans offer coverage equal to one times annual earnings, with some extending to two times. The number is a lump sum, but it was designed to soften the immediate shock of a death, not to replace the economic role a person plays in a household for years to come.

The standard policy is a term contract owned by the employer. Coverage exists only while the employee remains with the company. If the person is terminated, laid off, or leaves for another job, the insurance ends with the last day of employment. Some plans include a conversion option that allows the departing employee to switch to an individual policy within 31 days without a medical exam, but the premium typically doubles or triples because the new rate reflects the person's age and risk profile without the group discount.

Why the salary multiple fails

The one-year salary model treats life insurance as income replacement for a fixed period, but most households are not managing expenses on a one-year horizon. Mortgage amortizations in Canada run 25 years. A family with young children is planning for at least 15 years of dependent costs. $95,000 is a large number, but the real question is whether it retires the liabilities that would remain after the income disappears.

In Vancouver or Toronto, the average home carries a mortgage balance well above $500,000. A single year of salary, after covering funeral costs and immediate transition expenses, leaves the surviving spouse with the original debt and no means to service it unless they can immediately replace the lost income at full value. The math assumes perfect conditions: no job loss, no health crisis in the surviving parent, no reduction in hours to manage child care.

The portability gap

The shift toward contract work, freelancing, and frequent job changes has made employer-linked insurance increasingly unreliable as a foundation. A person who switches jobs every three to four years, which is now common among Canadians under 40, will experience repeated lapses in coverage. Each lapse requires reapplying, and each application is a new underwriting event. A health condition that develops between jobs can mean the next employer's plan either excludes that condition or requires evidence of insurability that the person can no longer provide.

The group plan also expires at retirement. Most policies terminate at age 65, precisely when the cost of securing new private coverage becomes prohibitive. A 66-year-old who has relied exclusively on workplace insurance will find that a $250,000 individual term policy, if available at all, costs several thousand dollars annually.

What replaces it

A base layer of individual term insurance, purchased in your 30s and locked in for 20 years, provides a price-stable foundation that does not evaporate when the job does. The group policy then functions as supplementary coverage for funeral costs or short-term cash flow, which is closer to what it was built to do.

For someone with dependents and a mortgage, the target coverage should match the outstanding loan balance plus five to seven years of household expenses. That figure will almost always exceed one year of salary. The group plan covers a fraction. The rest requires a separate decision.