One of the easiest ways to accurately calculate how much insurance you need is to use the DIME method.  The website Go Ask Newton has a great article explaining this method, but I will also include an example here.

The D stands for Death/Debt.  Typically I use about $10,000 to $15,000 for final expenses, and add to this whatever consumer debt the family might have.

The I stands for Income.  I've seen many financial professionals recommend taking the bread winner's yearly income and multiplying it by 10.

The M stands for Mortgage.  This is an easy one.  Just take a look at the remaining balance on the most recent mortgage statement.

The E stands for Education.  If the family wants to fund its child's/children's post secondary education, consider that a typical university education tuition fee in Canada is at least $4000 or $5000 per year, per child, but could be $8,000/yr or higher depending on the school.  Calculate accordingly.

In the my post Whole Life vs. Term Insurance, Round 2 I mentioned a 35 year old male looking to protect his family.  If this male bread winner had a wife and two children about 5 and 8 years old, as well as a mortgage and some personal debt, his insurance need might be as follows:

Debt/Death = $40,000 ($15,000 final expenses + $25,000 in student loans/car loans/credit card debt)
Income = $450,000 ($45,000/yr x 10)
Mortgage = $180,000
Education = $40,000 ($5,000/yr x 4 years x 2 children)

If we add all of these values up, we find that the insurance need for this man is $710,000.
 





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