How Much Term Life Insurance Should You Buy? (2023 Guide)

Peer reviewed by Tobin Tuff, Certified Life Insurance Advisor
In This Article

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:

  • The total amount of money your family will spend, not accounting for any lifestyle changes
  • Minus any money available to your family in the future
  • The amount of term life insurance you should buy will make up the difference

How much term life insurance should you buy?

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.

  1. Factor in your debts and mortgage, your family’s living expenses, and account for additional costs.
  2. Additional costs can include funeral expenses and your children’s post-secondary tuition.
  3. Figure out the term length you need to cover these obligations.
  4. You should cover the period of time when your mortgage balance is highest, the kids are young and and your income is lower.

This can be a tricky calculation, and it's hard to get right.

In general, we recommend that you:

  1. Compare your assets against your expenses, debts and obligations.
  2. Then, buy enough life insurance coverage to make up the difference.

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.

1. As a multiple of your income

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.

2. The DIME method

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. 

3. Comparing your financial obligations against your assets

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.

  • First, you’ll need to add all your debts, bills and daily expenses.
  • Next, sum up your assets: your savings, investments, your spouse’s income and any other money you have.

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.

How much is term life insurance?

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.

In summary: How much term life insurance you should buy depends

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.

  • Consider your financial obligations against your assets: the difference is usually a good starting point when estimating your life insurance needs.
  •  For a quicker rule of thumb, multiply your income by 10. But this formula won't work for everyone.
  • If you already know you need life insurance, now’s the best time to apply; premiums tend to be lower when you’re young and healthy.
  • The main advantage of term life insurance is that you can choose the term length.

FAQs: Term life insurance coverage amounts

Can you have too much term life insurance?

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). 

What is the best age to take term insurance?

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.

Do I need term life insurance if I have coverage at work?

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.

Laura McKay

COO & Co-Founder

About the Author

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