Life Insurance
Life Insurance Payout in Canada: What Is It and How Does it Work? (2023)
June 1, 2023
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5 minutes
You should buy enough term life insurance to cover 7-10 times your annual income, according to the Government of Canada.
That said, the most exact formula to calculate how much term life insurance you should get is:
How much term life insurance you should buy depends on your situation.
But in general, you should purchase enough insurance to cover your financial obligations if you pass away.
This can be a tricky calculation, and it's hard to get right.
In general, we recommend that you:
Sounds like a complete headache? Our online calculator will give you three recommendations, or even tell you if you don't need life insurance at all!
If you'd rather a simpler method, there are other ways to figure out how much term life insurance you should buy.
Caveat: simpler methods can tell you to buy more life insurance than you actually need!
And nobody wants to pay more for their life insurance premiums than they should be. Still, let's review three main methods and you can decide for yourself.
In a hurry? Simply multiply your income by 10 to quickly estimate how much life insurance you should buy.
Some say multiplying by 5 is enough, while the Government of Canada suggests coverage equal to 7-10 times your annual income.
According to this method, if you currently make $75,000 per year, your term policy should be around $750,000.
For example, it doesn’t account for your family size, debts, assets or other relevant factors in your family’s financial picture.
DIME is a catchy acronym to help you remember what matters when calculating your life insurance needs.
DIME stands for Debt, Income, Mortgage and Education.
You should purchase enough coverage to pay off your debts and mortgage, factoring in how many years of replacement income you want to provide for your family.
Education refers to your children’s future tuition costs — many people who buy life insurance in Canada want to ensure their kids won’t have to worry about going to university or college.
This is the most time-consuming method, but it gives you the best idea of how much term life insurance you should buy without over or underestimating.
The difference will give you a good idea of how much coverage you need.
Not one for statements and spreadsheets? We get it.
Try our online insurance calculator to help determine the optimal term life insurance coverage amount for you.
We provide helpful prompts to make sure you take into account all the debts and assets you have, and we’ll give you three estimates: a standard amount, one for tight budgets and another for extra coverage.
You can even use this estimate to shop around with different term life providers in Canada.
The cost of term life insurance in Canada is based on your age, gender, health and which insurance provider you go with.
As a ballpark figure, if you’re in your early 30s, with no health conditions, and purchasing a 10-year term life policy for $100,000 through PolicyMe, this will set you back somewhere around $22 a month.
But if you’re 60 and a smoker, your premiums can be more than $100 monthly for the same policy.
So if you suspect you need term life insurance, enrolling while you’re still young and healthy is best. You’ll get the best rates, no matter what life insurance company you go with.
The good news is that if you compare term and whole life insurance, term is the most affordable option for most Canadians.
PolicyMe offers some of the best term life insurance rates in Canada, plus a quick online quote and application process.
Ideally, you’re purchasing enough life insurance to ensure your family can pay off any debts and obligations while maintaining their current lifestyle.
But you don’t want to buy more coverage than you need because that results in unnecessarily high premiums.
Yes, you can have too much term life insurance. The more coverage you buy and the longer term you choose, the more your premiums will cost. So it makes sense to pay for the right amount of coverage rather than too much for coverage you won’t need.
You should purchase enough coverage to protect your family — to pay off your mortgage, remaining debts, cover their daily expenses and perhaps help with future goals (like paying for your children’s post-secondary education).
The best age to take term insurance is when you need it. Once you have financial obligations or people in your life that depend on your income, then term life insurance becomes necessary.
However, purchasing coverage while you’re young and healthy can be a good idea because your premiums will be cheaper.
Yes, you might need term life insurance even if you’re covered at work. Your employer may offer group life insurance as part of your benefits package, but this coverage is generally limited to 1-3x your annual income.
It’s unlikely that this would be enough to pay off your debts and mortgage and help your family with their living expenses if you passed away.
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