Do I Need Life Insurance Outside of Work?

Do I need life insurance outside of work?

If you’re an adult with debts, children, or anyone who depends on your income, you likely need life insurance outside of your job. 

This question is really made up of two questions:

1. Who needs life insurance?
2. Is employer-provided life insurance enough for most Canadians? 

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Who needs life insurance?

If you have dependents or family members (e.g., spouse or parents) who rely on your income, and/or if you have significant debts (e.g., mortgage, student debt), you need life insurance coverage.

Is employer-sponsored life insurance enough?

For most Canadians, life insurance provided through a job doesn’t offer enough coverage to provide meaningful financial security for dependents and loved ones.

The bottom line: Life insurance through work is designed as a simple, one-size-fits-all perk for employees. For most Canadians, it’s not a substitute for a full financial safety plan. 

When group life insurance might be enough

If you don’t meet the criteria for needing life insurance—that is, if you have no outstanding debts and no dependents—the group life insurance provided by your employer is likely enough. If nobody depends on your income and you have no major debts that would pass to your family if you died, it’s likely not worth buying a separate life insurance policy on top of your employer-sponsored coverage. 

Why most Canadians need private life insurance

While workplace life insurance is a helpful supplement, most Canadians need additional life insurance coverage in the form of a private plan. 

Quick facts

• 84% of Canadian adults aged 35–44 carry some form of debt.
• 59% of Canadians aged 35–44 have outstanding mortgage debt.
• 69% of Canadians aged 35–44 have non-mortgage debt such as credit card debt, student loans, or vehicle loans.
• The average mortgage debt for Canadians aged 35–44 is $359,600.
• The average non-mortgage debt for Canadians aged 35–44 is $45,000.
• 58.2% of Canadian households have at least one child.

Life insurance exists to protect your dependents and other loved ones from the financial impact of your death in two cases. If anyone relies on your income for routine living expenses, a life insurance policy can replace that income at least temporarily following your death in the form of a tax-free, lump-sum death benefit. And if you have outstanding debts or financial obligations, a life insurance policy can pay off your debts and prevent them from becoming a burden on your surviving family members. 

Life insurance can also…

• …cover funeral expenses and end-of-life costs, such as medical bills.
• …maintain operations for your business.
• …leave behind a charitable gift for an organization of your choice.
• …pay for your children’s education.

The supplemental life insurance plans offered in many employee benefit packages aren’t set up to accomplish all of these goals for you and your family, because they don’t take your full financial picture into account. Group life insurance policies are better seen as employee perks than as a viable life insurance option. 

Let’s take a closer look at why private life insurance is a better option for most Canadians. 

You likely need more coverage than group plans offer

The biggest problem with group life insurance policies is that they simply don’t offer enough coverage. 

How much life insurance do you actually need? The most accurate answer will depend on a thorough analysis of your insurance needs based on your income, your dependents, your financial goals, and more, but most insurance experts use a simple rule of thumb to calculate the ideal amount of coverage for an individual policy: 7–12x your annual income. 

Let’s do the math. According to Statistics Canada, the average annual income for a Canadian adult aged 35–44 is about $72,300. Multiply that by 7, and you get a total coverage amount of $506,100—about $3,000 shy of the actual average life insurance protection for most Canadian households. 

But group coverage typically only covers 1–2x your income. That’s a coverage gap of nearly $450,000—funds that could help your loved ones stay afloat after your passing and achieve the goals (like education, homeownership, and charitable giving) you’ve worked toward in life. 

Your life insurance shouldn’t depend on your employment

Another major problem with workplace life insurance: If you lose your job (or change jobs), you lose your coverage. 

Because it’s classed as an employee benefit, your group life insurance coverage will end when your employment at a given job ends—whether or not it was a voluntary separation. Job loss is a growing concern for some Canadian workers, who face instability as a result of economic shifts, AI growth, and other market forces. It’s also a consideration for anyone early in their career, as moving between jobs could destabilize your insurance options even as it increases your income. 

By purchasing individual life insurance, you lock in a single premium on a single policy that will stay active as long as you pay your bill—no matter your employment status. 

It’s an affordable way to protect the financial stability of your family

Life insurance, like all insurance, is all about small investments to protect against catastrophic costs.

Most Canadians won’t die in their 30s, 40s, 50s, or 60s—the years when dependents are most reliant on your income and debts are highest. But for those who do, the financial fallout can be devastating. From outstanding medical bills and burial costs to ongoing living expenses, mortgage, and debt payments, an unexpected death can place a financial burden totaling tens of thousands of dollars on surviving family members. 

Small chance, big cost

• Nearly 8,000 Canadians aged 35–44 died in 2023.
• Leading causes of death for Canadians aged 35–44 include accidents, cancer, heart disease, and liver disease.
• The average cost of funeral expenses in Canada is between $5,000 and $10,000.
• The financial toll of a cancer diagnosis in Canada averages nearly $33,000 in out-of-pocket costs and lost income.

The cost of death is high—and rising. But the cost of life insurance is still fairly low, especially for Canadians under age 45 in good health. For example, a term life insurance policy with $500,000 of coverage from PolicyMe typically costs $20 to $30 per month for a healthy, non-smoking 35-year-old. 

How much life insurance do you need on top of employer coverage?

If you’re buying life insurance on top of the employer coverage you receive through work, be sure to buy enough to pay off your debts, replace your income for at least a few years, cover funeral expenses, and accomplish any other key financial goals. 

There are a few ways to calculate the exact amount of additional coverage you need beyond your workplace life insurance. You can: 

• Multiply your annual salary by 7–12x: This is the simplest (and least accurate!) way to estimate your life insurance needs. It’s a good way to get a ballpark estimate, but only using a multiplier to purchase life insurance could lead to overpaying for more coverage than you need. 
• Use the DIME method: Add up your total (non-mortgage) debts, your annual income (multiplied by the number of years you need it replaced), your remaining mortgage balance, and the cost of your children’s education. This is essentially a more detailed version of the simple multiplier method. 
• Use a life insurance calculator: PolicyMe’s free online life insurance calculator is built by experts to show you three levels of coverage that may meet your family’s needs, at three different price points. It takes into account your full financial picture, from the age of your children to your partner’s income and coverage needs. 

You may need more than life insurance

While you’re looking at life insurance, consider whether you need additional coverage options, such as critical illness insurance or disability insurance. If you have these insurance options through your employer, your coverage may be sufficient, but it’s worth looking into your own policy if you don’t.

How much does life insurance cost?

The cost of life insurance premiums depends on a few key factors: 

On average, Canadians aged 30-44 with a term life insurance policy for $500,000 pay between $20 and $30 per month if they’re in good health and don’t smoke.

Term vs. group life insurance—the nitty-gritty

* Based on 1-2x the average Canadian annual salary of $72,300. 

** Based on average monthly premiums for a healthy, non-smoking individual aged 30–44. 

Why PolicyMe recommends term for most families

Term insurance isn’t the only type of life insurance Canadian families can buy, but it is the best fit for more families than any other type of life insurance. 

Unlike policies that offer permanent coverage, term life insurance is “right-sized”—it covers the specific period of time when you have dependents and debts at the lowest price possible. Life insurance plans with lifelong coverage, such as universal or whole life policies, end up charging much steeper premiums because the risk of death during these policies is essentially 100%. 

Term life is affordable, flexible, and built for families. All of PolicyMe’s term life insurance policies come with: 

• The option to convert to a permanent (term-to-100) life insurance policy if your needs change 
• The option to decrease your coverage later 
• $10,000 of built-in coverage for your children (including those born after the start of the policy) 

FAQs: Do I need life insurance outside of work?