How much life insurance do you actually need?

Ask three people how much life insurance they need and you'll get three versions of the same rule of thumb: some multiple of your income. It's a handy number, and it's usually the wrong one — because it ignores everything that actually makes the answer different for your family.

The method that gets closer to the real answer is the needs analysis. It's not mysterious: it's a list of what your family would need, minus what they'd already have. Here it is, step by step.

Step 1: The income your family would be short

This is usually the biggest piece, and the one people underestimate. It's the gap between what your household spends each year and what the surviving income would be, multiplied by the number of years that gap matters.

• Household expenses: the full annual amount — mortgage, food, school, lifestyle, all of it.
• Surviving income: what a partner would realistically earn. If the surviving partner has been out of the workforce for years, the honest number may be lower than their old salary — or zero.
• Years of support: how long the gap matters. Common anchors: the youngest child's independence, the mortgage's end date, or a fixed horizon like 20 years.

Example: an $85,000 household with a surviving income of $35,000 and an 18-year horizon faces a $900,000 income gap. That single number is bigger than most "income multiple" figures land at — which is why the multiple feels comforting and is usually under-sizing the need.

Step 2: The debts they'd inherit

The mortgage balance is the obvious one. But add the rest: car loans, credit cards, a parent's mortgage assistance, student loans your children inherited into a harder life. Debts don't care that the income is gone — they keep demanding their payments.

Step 3: The goals that should survive

Education is the classic one: the post-secondary funding your children were counting on, in a lump sum, now. Some families add a buffer for a spouse who sacrificed career advancement for the family — a number that's hard to price but real in its consequences.

Step 4: The expenses nobody budgets for

Funeral and final settlement costs are the piece that shows up whether you planned for them or not. Planning figures in Canada commonly run around $10,000 and up. Including them makes the plan honest; omitting them means the family pays it out of the reduced income.

Step 5: The subtractive side people forget

Here's where the needs analysis separates itself from a sales figure. Add up the total, then subtract:

• Existing life insurance — group coverage at work (often $50,000–$200,000) plus any personal policies
• Savings set aside specifically for the family — not the emergency fund, money earmarked to protect the household

The result is the coverage amount that would actually close the gap. It may be more than the income multiple suggested, or less — either way, it's a number you can see the arithmetic of.

Run it with your own numbers

The life insurance needs calculator on this site runs exactly this arithmetic — every component shown, assumptions stated, nothing hidden. Start there with rough numbers; refine them in a conversation. And if you want the full picture of how this fits with disability and critical illness coverage, start with the life insurance guide.

This article is educational and general in nature. It is not individualized financial advice, and no coverage amount is guaranteed suitable for any particular person.