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How much life insurance do I need when self-employed?


Over 90% of Canadians, with financial dependents, do not have enough life insurance coverage. This puts financial dependents at risk of having to cover some major expenses associated with premature death, including funeral and burial expenses and any lingering debts.

If you are self-employed, it’s likely that you don’t have access to any employer-provided benefits, which usually includes a nominal amount of life insurance coverage. This means that you are likely solely responsible for properly assessing your insurance needs, and purchasing a policy that is sufficient. There are a few ways to quickly assess your insurance needs and determine how much coverage to purchase.

Calculate your debts

An easy way to assess your insurance needs is to calculate the total value of your financial obligations, both immediate and long term. This can include mortgages, credit cards, personal loans, and student loans. This can also include money for university or college fees for children or other financial dependents. The total amount of your debts, would be the coverage amount that you purchase for your insurance.

For example: John, a father of two young children, has an outstanding mortgage of $500,000, and a car loan of $13,000. He wants to set aside $30,000 for each child to go to university in the future. He should purchase $573,000 ($500,000 + $13,000 + $30,000 + $30,000) of life insurance.

Replace your income

You can also multiply your salary by the number of years that you want to replace it. If you have young dependents, for example, and anticipate that they will need financial support for another 10 years, then multiply your salary by 10 years. You should use your net, rather than gross salary, as it more accurately reflects the amount that will be made available to spend on the financial needs of your dependents.

For example: John, wants to ensure that his family continues to receive his income for the next 10 years, at which point he expects his children will go off to university. His current salary after taxes is $62,000. He should purchase $620,000 ($62,000 x 10 years) of life insurance.     

You can always seek advice from an insurance professional to help you adequately assess your insurance needs (book expert). If you are purchasing life insurance to cover your business in case of premature death, learn more here about how to determine appropriate coverage amounts here or get a quote for insurance below.