How Much Life Insurance Do You Actually Need? (Canadian DIME Method)
"10× your income" is a guess dressed as a rule. The DIME method builds your number from four real obligations — and for a typical Ontario family it lands at $1,275,000. Here's the full worked example so you can run it on your own life.
How we check the numbers: every figure on this page is calculated from official CRA, Statistics Canada or Bank of Canada data and cross-checked with the free calculators on this site — run them yourself to verify.
The DIME method in 30 seconds
Add up four things your family would need covered if your income disappeared tomorrow, then subtract what you already have:
Illustrative example for an Ontario family: $80,000 earner, two young kids, $450,000 mortgage balance, $25,000 in non-mortgage debt. Your figures will differ — that's the point of the method.
The worked example
| DIME component | Example amount | Why |
|---|---|---|
| D — Non-mortgage debt | $25,000 | Car loan + credit cards + line of credit balances |
| I — Income replacement | $800,000 | $80,000 × 10 years (until kids are through school) |
| M — Mortgage balance | $450,000 | Remaining principal on the family home |
| E — Education | $200,000 | $100,000 per child for post-secondary |
| Subtotal | $1,475,000 | |
| Minus: existing assets | −$200,000 | $100,000 savings/investments + $100,000 existing coverage |
| Coverage needed | $1,275,000 |
Notice how far this is from "10× income" ($800,000) — the rule of thumb would leave this family $475,000 short, mostly because it ignores the mortgage. Rules of thumb are starting points; DIME is a calculation.
Adjusting it to your life
- Dual-income household? Run DIME separately for each earner. The surviving spouse's income covers part of the gap — but don't assume they can or want to keep working full-time while raising kids alone.
- Kids grown? The E and much of the I shrink fast. Insurance needs peak in your 30s–40s and fall sharply after — which is exactly why term insurance exists.
- Stay-at-home parent? They need coverage too: value the childcare, household management and lost future earnings their absence would create. Run DIME with a replacement-cost income figure.
- Existing group coverage? Employer life insurance (often 1–2× salary) counts in the "minus assets" line — but remember it vanishes if you leave the job.
Term vs whole life: the short version
For most families buying income protection, term life insurance is the right tool: you pay for pure coverage over the years you need it (typically 20–25 years, matching the mortgage and kids' dependency), and it's a fraction of the cost of permanent policies. Whole/universal life bundles insurance with an investment component — useful in specific estate-planning situations, but a costly way to buy the $1.275M of raw coverage this example needs.
Five mistakes that shrink real coverage
- Counting group coverage as permanent. That 2× salary policy at work is great — until a layoff, a career change, or retirement makes it vanish exactly when you're older and harder to insure. Treat group coverage as a bonus, not the foundation.
- Forgetting the stay-at-home parent. Replacing full-time childcare for young kids can easily cost tens of thousands a year — over a decade, that's a six-figure obligation the basic DIME run doesn't capture for a non-earning spouse. Run DIME for both partners.
- Stale beneficiaries. An ex-spouse still named on a policy from a decade ago overrides your will in most provinces. Review beneficiaries after every major life event — marriage, divorce, new child.
- Ignoring inflation. $1,275,000 in 20 years buys meaningfully less than $1,275,000 today. If you're buying a 25-year term, consider whether the face amount should be 10–20% higher to compensate — or plan to layer a second policy later.
- Insuring the wrong person. Families often insure the higher earner heavily and the lower earner lightly — but if the lower earner provides the childcare that lets the higher earner work, their economic value is larger than their paycheque suggests.
Frequently asked questions
Is $1,275,000 too much? It sounds enormous.
It's the math, not a sales pitch: $800,000 of it is simply replacing a decade of income, and $450,000 clears the mortgage. Most families are underinsured precisely because the real number feels uncomfortably large.
Should I include the mortgage if my spouse would sell the house?
If downsizing is a genuine plan, you can reduce the M component — but price the alternative honestly: selling costs, moving costs, and renting or buying smaller in the same market. Most families keep the home, so keep the mortgage in.
How often should I redo this calculation?
Every 2–3 years or after big events: new child, new home, big raise, debt paid off, kids finishing school. Your need falls over time — that's normal and good.
Sources
Tackle the D first
Non-mortgage debt is the most expensive part of DIME to carry. Use the debt payoff calculator to shrink it — every dollar of debt eliminated is a dollar less coverage you need to buy.
Educational content only — not financial advice. Figures are estimates; confirm your own situation with the CRA or a licensed financial advisor. See our Disclaimer.