How much life insurance do you need? The calculation methods

Ask each spouse separately. "How much life insurance do you think we would need?" Write down both answers without commenting on them, then compare.

The two figures rarely resemble each other. They are often two or three times apart. And in almost every case, neither of them rests on a calculation: they are impressions, formed from something a colleague said, an ad glimpsed somewhere, or a round number that "sounded reasonable."

This is not a failure of rigour. It is simply that nobody ever showed us the method. It does exist, though, it is taught, and it is even framed by Québec regulation.

Why shortcuts do not hold up

"Three times your salary." "Five times your salary." These rules of thumb circulate because they are easy to remember, and they have one fatal flaw: they know nothing about your situation.

Two people with exactly the same income can have completely different needs. One has a mortgage and two preschool-aged children; the other owns their home outright, with no debt and nobody depending on them. The multiplier sees neither of them.

The Autorité des marchés financiers (AMF), Québec's financial sector regulator, puts it differently, but says the same thing: "The amount and type of insurance you choose will depend both on your needs and on your means."

The method regulation already requires

You do not have to invent a method: one exists, and a financial security advisor is required to carry it out before proposing a product to you.

The AMF states it this way: "Is a financial security advisor offering you insurance? Note that they must first carry out an analysis of your needs." That analysis — known in the industry as the financial needs analysis, or FNA — covers, according to the AMF, four elements in particular:

• the features of the insurance contract you already hold;
• your family obligations;
• your financial position;
• your income.

The Chambre de l'assurance, the body that oversees advisors, created in 2026 by the merger of the Chambre de la sécurité financière and the Chambre de l'assurance de dommages, publishes for its part the list of documents to gather before a meeting: your work-related group benefits, your existing insurance policies, your legal documents (will, power of attorney, protection mandate), your assets, the nature and balance of your debts along with the interest rates attached to them, and your most recent tax returns.

That list is not an administrative formality. It is, in outline, the structure of the calculation.

The DIME grid: four columns, one total

To do the exercise yourself before even speaking to anyone, the most widespread way to structure a needs analysis is the grid known by the acronym DIME: Debt, Income, Mortgage, Education. Four items, to be added up.

D — Debts. Everything that would remain to be repaid: credit card balances, lines of credit, car loan, personal loan, joint debts. The AMF does in fact cite the repayment of personal and joint debts among the classic needs life insurance answers. Add the costs tied to the death itself: the AMF mentions funeral costs and tax at death, since the majority of the deceased's assets are then deemed to have been sold.

I — Income replacement. How much would your loved ones need to receive each year to maintain their standard of living, and for how many years? Multiply one by the other. The number of years is not a magic figure: it is the length of time during which the absence of your income would make a real difference, for example until the youngest child is self-sufficient.

M — Mortgage. The balance remaining on the home, and where applicable on a cottage or a rental property.

E — Education. What you would like to leave for the children's post-secondary studies. The AMF explicitly names paying for the children's education among the needs associated with term insurance.

Do not forget the new costs the death creates. The AMF gives a concrete and often overlooked example: "if one spouse regularly looked after the children while the other spouse worked, childcare costs may need to be considered."

Do the arithmetic, with your own figures

Here is the order of operations. The amounts below are a fictional template: they describe no real situation and serve only to show the mechanics. Replace each line with your own.

Item	How to fill it in	Template example
D — Debts	Card balances, lines of credit, loans, + funeral costs and tax at death	$25,000
I — Income to replace	Annual need × number of years	$45,000 × 12 years = $540,000
M — Mortgage	Balance remaining to be repaid	$210,000
E — Education	What you want to leave, per child	2 × $20,000 = $40,000
Subtotal of needs	Add the four lines	$815,000

The subtotal is not your answer. It represents only half of the calculation.

The second half: subtracting what already exists

The AMF is clear about this step: "You must compare the insurance you have with the insurance you need in order to determine what you are currently missing and what you will be missing in the foreseeable future."

Four sources to subtract from your subtotal.

Your group life insurance at work. It counts, but with a caveat. According to the AMF, the life insurance in a group plan is term insurance, in force for the duration of your participation in the plan, and "it usually ends if you change jobs or when you retire." Subtract it, but know that it is conditional on your employment.

Your individual policies already in force. Check the actual amount in the contract, not the one you remember.

Your savings that are quickly available. The AMF points out that the insured person's liquid assets are sometimes enough to cover certain costs, and gives the example of an RRSP whose funds could be used to pay the corresponding tax.

The Québec Pension Plan (QPP) death benefit. According to Retraite Québec, it is a one-time payment with a maximum amount of $2,500. It is paid only if the deceased contributed enough to the plan, and it must be applied for. It is paid as a priority to the person or the charitable organization that paid the funeral expenses, on proof of payment.

In the template above, a household with $80,000 of group insurance, $60,000 of accessible savings and the maximum $2,500 benefit would subtract $142,500 from its $815,000 subtotal, for a residual need of $672,500. Once again: these are demonstration figures, not a recommendation.

The most frequent oversight: the spouse without a salary

The calculation above has a known blind spot. When one of the two spouses draws no employment income — because they are at home, studying, on extended leave or retired — many households conclude that there is "nothing to replace."

That reasoning confuses income with value. Unpaid work done at home has a very real replacement cost: childcare, driving the children, preparing meals, upkeep. It is exactly the item the AMF is referring to when it speaks of the "new costs caused by the death."

The question to ask is not "how much does this person earn," but "what would have to be paid for if they were no longer here."

The calculation has an expiry date

An amount calculated at 32 no longer says much at 44. The mortgage has shrunk, the children have grown up, the income has changed, and so has the group plan.

The AMF puts it simply: "Your insurance needs change over time. Periodically reassess whether the insurance you bought still suits you."

One point of caution if your reassessment leads you to want to replace one policy with another. The AMF recalls that an advisor who proposes such a change must complete a Préavis de remplacement de police (notice of policy replacement) form, explain it to you, and set out both the advantages and the drawbacks. It adds three precautions: understand what the new policy offers more of and less of than the old one, make sure the new insurance is in force before ending the old one, and check whether the replacement triggers tax.

Frequently asked questions

Should both spouses be insured?

That is a personal decision, but the calculation is done twice, not once. Each spouse has their own obligations to cover, and the results are rarely identical.

What if the amount I get exceeds my budget?

The AMF recalls that the premium you will pay "must fit your budget." A calculated need is not an obligation to buy: it serves to tell you where you stand, and to let you decide, with full knowledge of the facts, how much of that gap you choose to cover today.

Is the amount paid out taxable for my loved ones?

According to the AMF, "the life insurance amount paid by the insurer is always tax-free." That does not exempt the estate from tax at death on the other assets, which is precisely one of the items to enter in the debt column.

Should I redo the calculation before asking for quotes?

That is the logical order: the amount first, the quotes after. Comparing quotes for an amount you have not established amounts to comparing answers to a question you never asked.

Sources

• Autorité des marchés financiers, "5 étapes à suivre avant de vous assurer": https://lautorite.qc.ca/grand-public/assurance/assurance-vie/5-etapes-a-suivre-avant-de-vous-assurer (accessed August 10, 2026)
• Autorité des marchés financiers, "L'assurance vie temporaire": https://lautorite.qc.ca/grand-public/assurance/assurance-vie/principaux-types-dassurance-vie/lassurance-vie-temporaire (accessed August 10, 2026)
• Autorité des marchés financiers, "L'assurance vie collective": https://lautorite.qc.ca/grand-public/assurance/assurances-collectives/assurance-vie-collective (accessed August 10, 2026)
• Chambre de la sécurité financière (now the Chambre de l'assurance), "Faire affaire avec un professionnel": https://www.chambresf.com/fr/grand-public/faire-affaire-professionnel (accessed August 10, 2026)
• Retraite Québec, "La prestation de décès": https://www.retraitequebec.gouv.qc.ca/fr/deces/rentes-prestations/rrq-prestation-deces/Pages/rrq-prestation-deces.aspx (accessed August 10, 2026)