Why Does Someone Need Life Insurance and How Much?

Scott McEachern |

Scotiabank uses the tagline “You’re Richer Than You Think”, and I like to tell people “You’re Worth More Than You Think”. When it comes to life insurance, there are a few reasons one might consider purchasing a policy. They are listed below:


  • You are expecting or have dependents

  • You have a mortgage

  • You have loved ones that would be responsible for loans or final expenses

  • You have a family that you love that relies on your income


If you fall into any of the above categories, then you have a need for life insurance. But then the question becomes “How Much Do I Need”? Let’s break that down now, and remember, you are worth more than you think!


Final Expenses

Regardless of what your final wishes are, they come with expenses. A funeral, cremation, urn, burial, and/or celebration of life all come with a cost. In Ontario, the average cost of a funeral ranges from $3,000 to $20,000. Also, in the event of your premature death, you may also have taxes owing on your final return. So, for final expenses I often recommend you need $25,000 of life insurance.


Mortgage and Other Debts

The average mortgage for a first time home buyer in Barrie floats around the $400,000 mark. If you die prematurely, you want to have life insurance to pay this off so that your spouse/children are not forced to leave the family home or struggle financially. Do you have a car loan that needs to be paid off? A co-signed line of credit with a parent or spouse? You will want all of these paid off too. Usually this number ends up being sound $400,000-$500,00.


Education for Children

If you were to pass away tomorrow, would you want to leave a legacy by ensuring there are adequate funds available to pay for your children’s post-secondary edcuation? Depending on your beliefs, this amount could range from $0-$100,000. Often I recommend $50,000 per child to maximize the RESP plan and obtain the full Canada Education Savings Grant from the government. 


Replacing Your Income

This is the section where people’s eyes often bulge and they really discover their value. If you earn the average income of an Ontario worker, that’s about $50,000/year. Over 20 years, you will have earned $1,000,000!! If you pass away tomorrow, you and your family no longer have the ability to earn that income. Your current lifestyle (home, two cars, lots of family activities) may be easily attainable in a two income household, but cannot be achieved on one income alone. The amount of insurance needed in this section depends on your income and how many years you would like to replace it for. Quite often this can range from $250,000 up to $1,000,000. This forms the bulk of your insurance needs.



Do you wish to leave money to a favourite charity? Your church? A gift to niece or nephew? This section can range from $0 to $5,000, usually.


So, now we tally up the five sections to get to the total amount of life insurance you should have in force. On the lower end, this can be $500,000, but can also easily total $1,500,000. It’s important to review and update your insurance needs each year. If you have an additional child, or buy your first home, you will likely need more life insurance.

I am happy to go through this exercise with you over the phone (during COVID) and then I shop the market for you to find the best solution based on your needs. Email scottmce@csolve.net to arrange a time to connect.