Life insurance calculator

Add up what your family would need if you died: years of income, the mortgage and other debts, children’s education and final expenses. Then subtract life insurance you already have and savings your family could use. What’s left is a reasonable starting point for coverage.

With $80,000 of income replaced for 10 years, a $350,000 mortgage, $15,000 of other debts, $40,000 of education for each of two children and $15,000 of final expenses, needs total $1,260,000. Subtracting $100,000 of existing coverage and $25,000 of savings leaves a gap of $1,135,000, so it suggests $1,150,000 of coverage on a 25-year term, since the mortgage has 22 years left.

Rules of thumb use a multiple of income, but a needs-based estimate is more precise because it counts your actual debts, children and savings. Two people with the same income can need very different amounts.

Term life insurance pays a set amount if you die during a fixed period, such as 10, 20 or 30 years. It has no cash value and usually costs less than permanent insurance for the same coverage, which makes it a common choice for covering a mortgage and raising children.

Match the term to how long people depend on your income: usually until your youngest child is independent or your mortgage is paid off, whichever is later. The calculator rounds that up to a 10, 15, 20, 25 or 30-year term.

You pay premiums for the length of the term, and your beneficiaries receive the coverage amount if you die during it. If you outlive the term, coverage ends unless you renew, which usually costs more, or convert to permanent coverage if the policy allows.

Premiums depend on your age, health, smoking status, the coverage amount and the term, so they vary a lot from person to person. This calculator doesn’t quote premiums; use the coverage and term it suggests to get quotes from insurers or an advisor.

You can include it under existing coverage, but group coverage usually ends if you leave the job. Many people count only part of it, or none, when deciding how much individual coverage to buy.

A death benefit paid to a named beneficiary is generally received tax-free in Canada. Tax can still apply in some situations, for example to interest earned after death, so confirm details with the Canada Revenue Agency or a tax professional.