January 5, 2022

Do I need life insurance – and how much do I need?

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Learn the ins and outs of life insurance - why you might need it, when it wouldn’t suit you, and how much coverage you’ll need.

Do I need life insurance?

You may find yourself asking this question.

Generally speaking, life insurance is necessary when you have dependents who would be financially affected by your death. However, in Canada, it’s not required by law to have it.

What it really comes down to is your unique family and financial situation. So although it might seem like the default responsible thing to do, buying a policy doesn’t always make sense for everyone.

It depends on a few different factors. 

Let’s explore why you might need life insurance, when it wouldn’t suit you, and how much coverage is needed to keep things status quo after you die.

But first, there are two types of life insurance.

One is called term life insurance and another is called permanent life insurance.

Term life insurance can last for a fixed amount of time whereas permanent (as the name suggests) can last your whole life.

Most people choose to go with term life insurance over permanent due to the sheer price difference between them. 

Although permanent life insurance comes with lifetime coverage and can be advantageous, not everyone can justify an expensive premium. 

Permanent life insurance is typically more geared towards people with a long-term perspective, usually those who are more established and who’ve maximized their registered investment accounts like RRSPs and TFSAs.

So it’s worth evaluating what financial stage you’re in.

When life insurance makes sense for you

Consider this checklist:

  • Are you married?
  • Do you have kids or relatives who rely on you for financial support?
  • Are you a business owner?
  • Do you have significant debt that outweighs your assets?
  • Do you own a home or are you thinking about buying one?

If you answer yes to any of these, chances are you probably need life insurance.

The whole point of life insurance is to ensure your loved ones are financially taken care of after you die — meaning your family’s standard of living remains intact, neither going up nor down as a result of losing you.

The same is true if you’re a business owner and need income replacement to protect your employees from debt or unexpected costs, and safeguard the future of your company. For example, buying out partners or shareholders in the event of an untimely death.

Other debts like your mortgage, car payments, childcare expenses, and credit card bills can be covered by insurance to help offload the absence of your income.

Life insurance can help you split up your money, whether you want it going towards important causes and charities or to non-dependent family members and friends.

Even if you’re single and don’t have any dependents, it’s still worth looking into whether a life insurance policy could be beneficial for your day-to-day life.

Because getting insured isn’t just about future-proofing inevitable events such as funeral arrangements and the kind of life you want to leave behind for those you love. It also empowers you to enjoy peace of mind now, while you’re still here.

New insurtechs like Walnut offer subscription-based life insurance and bands together with top wellness and security brands such as Dashlane to help ensure your digital accounts and passwords are iron-clad against cybersecurity threats.

That way, you can feel at ease as our lives become ever more digitally connected.


When life insurance doesn’t make sense for you

Generally speaking, if you’re single with no dependents and don’t rack up debts you aren’t able to accessibly pay off, you may just be able to skip out on life insurance.

Because when you have enough savings and assets to cover all your funeral expenses and then some for your family, getting a life insurance policy may not offer you additional advantages.

If your house is paid off and you keep generous savings tucked away for literally any kind of fund, whether it’s for an extensive tropical getaway, everyday expenses, or education, you’re likely well set up to absorb the costs that come with an untimely death.

Consider this example: a person in her late 60s has no dependents and has $100,000 left on her mortgage. Does she need life insurance?

Assuming she has a healthy emergency savings fund, she can probably get by without life insurance if she can pay off the rest of her debts until her very last day. But if she wants, she can still choose a term life insurance policy, which is inexpensive and temporary.

What will it cost?

Adulting is already expensive enough. The average funeral cost in Canada hovers just above $9,000 but can add up to as high as $20,000 depending on the family’s preference, culture, and values.

The question of how much insurance coverage you need depends on your standard of living beforehand—or more acutely—how many years of your paycheque you need to leave behind and sustain the quality of life of your beneficiaries.

The biggest factor in determining the cost of life insurance is considering single-income vs. dual-income households.

If you’re a single-income household, the general rule of thumb is to have at least 80% of income needs insured.

If you belong to a dual-income household, you’ll need at least 60% of your income needs insured. In a dual-income household where you’re the breadwinner, you’ll need more life insurance than if your spouse made a similar amount of income.

You’ll also want to consider how much income you want to replace by the number of years you’re not working. Typically, it’s a good idea to aim for enough income replacement from now until the day you retire since you stop losing income when you retire.

But if you have kids, you’ll also want to factor in the least number of years of income you’d want to insure until your children become financially independent.

As you can see, the amount of insurance coverage you should get depends on many different factors, so it’s best to consult an expert.

Live life on your terms

Picture your life after you’re gone. What does it look like?

Life insurance can help shape that future, offer you immediate peace of mind, and help take care of your family and loved ones well after you’re not around.

The key thing to remember when considering if life insurance is the right move for you is latching onto your why and developing a logical framework for decision-making.

  • Who will be impacted by losing you?
  • What can they stand and not stand to lose as a result?
  • What do you want to leave on the table, and to whom and how much?

It can be helpful to consult with an expert to figure out the exact amount of insurance you need or use a handy tool like Walnut’s insurance calculator to assess your insurance needs.

At Walnut, we make life insurance easy with our transparent subscription plans, instant coverage, and holistic benefits that support your daily life.