Life Insurance Calculator (2024)
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Compare the best life insurance companies
Ensuring your loved ones are financially secure in the face of life's uncertainties is paramount. Life insurance provides that safety net, covering costs like funerals and mortgage payments in case of the unexpected.
But calculating the right amount can be a real hassle, right? Well, we've made it simple for you. Our life insurance calculator is here to help you figure out just how much you need.
Once you know that, you can use our free comparator to compare the best life insurance policies in Canada, get free quotes, and find a plan that truly suits you and your family.
Do you need life insurance in Canada?
Life insurance is not mandatory in Canada, however, 22 million Canadians have decided that it is a good choice for them.
Whether or not you need life insurance depends on your circumstances and financial situation. Life insurance is designed to provide financial protection for your loved ones in the event of your unforeseen death.
It can also cover funeral expenses, outstanding mortgages, and living expenses for your family during a time of grief. A substantial life insurance policy can even provide income for your family, which may be important if you are the main earner.
If you have dependents, for example, children or a spouse, or if you have significant financial obligations then life insurance may be worth investigating. Are your savings substantial enough to cover the immediate and long-term needs of your family if something were to happen to you?
How much life insurance do you need?
A general rule regarding the right amount of life insurance is that you should take your annual income and multiply it by ten.
However, this does not take into account your unique situation. For example, you may be looking after your parents financially or you may have many children. More dependents, or dependents with greater financial needs, could be a reason to go for a larger policy. If you have unpaid credit card debt, for instance, life insurance might be a good way of making sure that those debts are not passed on to your loved ones.
For example
Antonia, 46, is a single mother of two children living in Toronto. She currently earns $80,000 a year. Using the most basic formula, she will want to have a coverage level of $800,000. This is likely an appropriate amount to ensure that her children would be taken care of, covering living expenses, outstanding debt, and future education expenses.
Once you know how much life insurance you need, we recommend that you check out multiple plans before buying one. You can use our comparator below to compare plans and get free quotes for Canada's best life insurance policies in seconds.
Compare the best life insurance companies
How does our Canada life insurance calculator work?
Using our Canada life insurance cost calculator is simple, although you will need to have some of your financial information to hand before you start.
First, enter your estimated end-of-life expenses (this includes funeral and the legal fees for settling your estate), then enter your existing debt (including car loans and mortgages), and then your current annual expenditure as a household (including your spouse, children, and any other dependents).
On the second row enter your household income (including your spouse's income and any income from investments) and the value of your estate (if you hold investments or property).
Finally, enter the term that you want the life insurance to last for (from a minimum of ten years). Once these are all added the life insurance needs calculator will give you an estimate of how much life insurance coverage you should be looking to buy.
For example
Let's take a look at Antonia again. Our life insurance calculator Canada takes more into account than the simple formula. Antonia expects her final expenses to be around $8,000. She has an unpaid mortgage of $260,000. She calculates her annual expenses at around $65,000 and her assets at $200,000. For a ten-year term, she would therefore need a coverage level of $710,080.
Expert advice
The $710,080 figure is in the same ballpark as the $800,000 figure she got from the "10 times earnings" rule of thumb.
How do life insurance companies calculate premiums?
The cost of life insurance in Canada can vary widely depending on several factors, such as the age, health, and lifestyle of the prospective policyholder, as well as the type of coverage they choose.
Some types of life insurance such as term life insurance, are typically less expensive than permanent life insurance policies. The amount of coverage you choose will also affect the cost, as higher coverage amounts generally come with higher premiums. In the table below, we have laid out estimated costs for a $100,000 term life insurance policy based on age.
| Age | 10-year term / annual cost | 20-year term / annual cost |
|---|---|---|
| 30 | $150 | $170 |
| 40 | $185 | $250 |
| 50 | $230 | $545 |
| 60 | $770 | $1480 |
| 70 | $2,060 | $2,560 |
As a general rule, adult women pay 10-20% less than adult men for life insurance, individuals who smoke, on the other hand, will pay much more than non-smokers regardless of sex. Many other factors will affect your premiums including your job and where you live.
Let's see an example:
For example
Michael and Brian are identical twins living in Calgary. They are both 36. However, while Michael has a healthy lifestyle, and Brian is a 20-a-day smoker. Therefore while Michael will be paying around $150 a year in life insurance premiums, Brian will be paying $300+.
Some companies also provide online calculator based on their unique policies. For instance, the RBC life insurance calculator and Manulife Life Insurance calculator work similarly to our HelloSafe cost life insurance calculator.
Want to get your personalized quote? You can do it right here. Use our comparator below to compare the best life insurance plans in Canada and get over 20 free quotes in seconds.
Get a life insurance policy that's right for you and your loved ones
How do insurance companies calculate premiums for whole life insurance?
Insurance companies will the same factors into consideration when calculating the premium for a whole life insurance policy as they do for term life insurance, with some important additions. Premiums for whole life insurance are higher than those for term life insurance because whole life insurance policies have a cash value component provide lifelong coverage and can also pay out dividends.
Let's take a look at some of the major factors affecting the premiums in the table below:
| Factor | How it affects the premium |
|---|---|
| Age | The age of the policyholder is a key factor in determining the premium. The younger the policyholder, the lower the premium. |
| Cash value | Permanent life insurance policies have a cash value component that grows over time. The premium is also affected by how much of the premium goes towards building the cash value component. |
| Coverage amount | The amount of coverage selected by the policyholder will also impact the premium. Higher coverage amounts will generally result in higher premiums. |
| Dividends | Some whole life insurance policies pay dividends to policyholders. The premium can be affected by the level of dividends paid. |
| Sex | On average, women tend to live longer than men, so their premiums are usually lower. |
| Health | As whole life insurance guarantees a pay-out. Insurance companies will ask questions about the policyholder's medical history, current health status, and lifestyle habits (such as smoking) to assess the level of risk associated with insuring that individual. |
How do insurance companies calculate cash value for whole life insurance?
The specific formula used to calculate the cash value of a whole life insurance policy in Canada will vary depending on the provider and your location. However, in general, the cash value of a whole life insurance policy will increase over time as premiums are paid and investment earnings accumulate.
Additionally, the cash value can be used to pay premiums or be borrowed against, though doing so may affect the death benefit and could result in taxes or penalties. Take a look at the table below to see the major factors affecting cash value:
| Factor | How it affects cash value |
|---|---|
| Expenses | The insurance company deducts various expenses, such as administrative costs and the cost of insurance coverage, from the cash value of the policy. |
| Investment earnings | The cash value of a whole life insurance policy is invested by the insurance company in a variety of investment vehicles such as stocks, bonds, and money market funds. The investment earnings on these funds are added to the cash value of the policy. |
| Mortality experience | The insurance company also considers its mortality experience, which is the number of policyholders who die each year. The mortality experience affects the amount of money the insurance company needs to reserve for future claims. |
| Premiums | A portion of each premium payment goes towards building the cash value of the policy. The amount of the premium that goes towards the cash value is determined by the insurance company and is typically higher in the early years of the policy. |
Cash value life insurance calculator
Calculating the cash value of whole life insurance involves reviewing your policy documents, understanding the surrender value, contacting your insurance company for current figures, and considering any outstanding loans or interest accrued. The same applies if you're looking for a universal life insurance calculator. It is essential to consider the impacts of fees, loans, withdrawals, and taxes on the cash value. It's a complex process, and seeking advice from a financial advisor or tax professional is advisable.
How long a term of life insurance do you need?
The length of time that you need to have covered by life insurance will depend on your circumstances. We have laid out some of the factors for you to consider below:
| Factor | How it affects your planning |
|---|---|
| Dependents | If you have children a spouse or aging parents that rely on your income then you will need to have life insurance place until they become financially independent. This could be when your youngest child turns 18 or your spouse finishes their degree and re-enters the job market. |
| Debt | If you have outstanding debts such as a mortgage or car loan, you may want to have life insurance coverage until these debts are paid off. |
| Savings | If you have a business that is currently struggling or burdened with debts you may want to have a life insurance policy in place until the business is self-sustaining |
| Business | If you have a business that is currently struggling or burdened with debts you may want to have a life insurance policy in place until such time as the business is self-sustaining |
It is important to review your life insurance needs regularly as your personal, financial, and business circumstances change. Using the calculator at the top of this page can help you see how adjustments in income and expenditure will affect your life insurance expenses.
