The rule of thumb you have probably heard is "ten times your income." It is easy to remember and it is wrong for a lot of people, in both directions. A better approach takes about fifteen minutes and a pen.
Why this matters right now
Statistics Canada reported in September that Canadian households owed about $1.76 in credit market debt for every dollar of disposable income in the second quarter of 2026. That ratio actually eased from the first quarter, but it is still the backdrop for every family decision: if one income disappears, the debts do not.
An industry-linked study published this June, using Statistics Canada, CMHC and CLHIA data, estimated that the average household needs about $595,000 of coverage and holds about $509,000, a shortfall of roughly 14.5%. Treat that as indicative rather than gospel, since it comes from a company that sells insurance products, but the pattern it describes matches what advisors report: people have something, and it is usually less than they would need.
The four buckets
1. Debts. Mortgage, car loans, lines of credit, credit cards. Add them up. This is the number you would want gone on day one.
2. Income replacement. Take the after-tax income your family would lose and multiply it by the number of years it would take to get the kids to independence or your partner to a stable footing. Many people use 10 to 15 years. You are not trying to replace the income forever, just long enough to give people room.
3. Future costs you already know about. Post-secondary education, childcare, a funeral. These are specific and you can put a figure on them.
4. What you already have. Subtract savings, investments, and any coverage you already own. Include group insurance from work, but see the warning below.
A worked example (invented numbers)
Say a parent earns $80,000 and takes home about $62,000. Mortgage balance: $380,000. Other debts: $25,000. Income replacement for 12 years: $744,000. Education and final costs: $60,000. Total: about $1.2 million. Subtract $150,000 in savings and $100,000 of employer coverage. The gap is roughly $950,000. That is a very different answer from "ten times income," which would have said $800,000, and a different answer again for a single person with no dependants.
Don't count on the government to fill the gap
In Quebec, the Quebec Pension Plan does pay survivor benefits, but the amounts are modest relative to a lost salary. For 2026, Retraite Québec lists a lump-sum death benefit of up to $2,500 and an orphan's pension of $307.81 per month. Useful, but it will not cover a mortgage payment. The Canada Pension Plan has similar structure outside Quebec.
The employer coverage trap
About 59% of Canadians reported having life insurance through a group plan in 2025, according to the same industry study. Group coverage is convenient and cheap, but it is usually tied to the job. Change employers, get laid off, or go freelance, and the coverage can disappear exactly when your health may have changed. Many people keep a personal policy as a base and treat the group plan as a bonus.
Gig and self-employed workers are a growing version of this problem. That study put the share of Canadians doing gig work at around 28%, and said over one in five of them have neither health nor life insurance through any plan.
Revisit it
Redo the exercise when something big changes: a new child, a new mortgage, a divorce, a business launch. Coverage that was right in 2019 may be thin in 2026.
Sources
- Statistics Canada via BNN Bloomberg, household debt-to-income Q2 2026
- Insurance Business, underinsurance report (June 2026)
- Retraite Québec, 2026 benefit amounts
General information only, not personal advice. Covaria is a comparison and referral platform, not an insurance broker. Talk to a licensed advisor before you buy.