02 Mar Why $500,000 may not be enough life insurance to protect a family
In an interview with The Globe and Mail, financial planner Kelly Ho says many Canadians underestimate their life insurance needs, particularly in high-cost cities. She notes that $500,000 in coverage often falls short of covering mortgages, expenses and income replacement, and says longer-term policies are gaining popularity for providing lasting financial certainty.
Many Canadians see $500,000 as the ideal term insurance coverage, according to a recent study from insurer PolicyMe Corp., but advisors say that amount won’t meet the mark, especially in dense urban centres. The study, released last week, examined the habits of 18,000 Canadians nationwide who purchased term life insurance.
In small cities and towns, depending on a person’s liabilities and situation, $500,000 might be adequate, says Kelly Ho, partner and certified financial planner (CFP) at DLD Financial Group in Vancouver. But with larger mortgages and expenses in cities such as Toronto and Vancouver, $500,000 won’t go as far as clients may think, she says. “I see clients [in those cities] taking out at least $1-million and upward of $3-million in term policies,” she says.
Andy Kovacs, CFP for Moments of Truth Insurance Services Corp. at Sun Life Financial Distributors (Canada) Inc. in Markham, Ont., says one of his clients recently died, and the surviving spouse used $500,000 from the term insurance policy just to clear the mortgage. Other immediate expenses included a car loan, child care, and burial and funeral expenses.
Income replacement matters
Lynn Wang, CFP and insurance advisor at iA Private Wealth Insurance Inc. in Toronto, says many prospects are price-conscious, focused on the premium they’re paying. “They want to make sure the money they’re spending is worthwhile, and they will also compare different policies,” she says. Ms. Wang starts discussions with planning questions, such as what clients need the insurance for and how long they need it. Mr. Kovacs says some clients concentrate on a minimum amount to pay off the highest level of debt, usually the mortgage. But he says advisors may need to underscore income replacement with clients – the loss of family income should the primary breadwinner die, for example. “The income replacement piece is so valuable to make sure the family can maintain the standard of living,” he says. “Do you want your family to have to move because they can’t afford the neighbourhood?” While every client situation is different, Mr. Kovacs says he generally recommends 20 times annual income to account for income replacement. “A 5 per cent payout on the benefit will replace income in perpetuity,” he says.
Term length of policy
To keep the right amount of insurance affordable, he may start with a cheaper 10-year term policy instead of 20 or 30 years. “It helps them get their foot in the door and they have the needed coverage,” Mr. Kovacs says. “As their lives evolve, we can always change the policy.” The study found Canadians under the age of 44 are more likely to pick a 30-year policy. Mr. Kovacs says he sees more families opting for 30-year terms in anticipation of leaving their adult kids money for things such as a house down payment. He notes that more kids may live with their parents for longer.
Ms. Ho of DLD Financial Group is also seeing an uptick in 30-year term policies. She says some clients simply like the idea of automation when it comes to their premiums. “People just want to set it and forget it,” she says. “Having a baseline amount that’s set for the long-term gives the family a lot of comfort.” She also works with clients on customizing a solution. While she says clients know about 10-, 20- or 30-year policies, they may not realize they could get a term specific to them, such as 27 years. “A few carriers can provide whatever term you wish and people don’t know that,” Ms. Ho says.
Mental health is featured on more applications
The PolicyMe study also found that mental health is the most common ailment reported by Canadians between the ages of 18 and 29 who are providing medical data on their insurance applications, at 37.1 per cent. Only 3.8 per cent of Canadians over 60 listed mental health as an ailment.
It’s not a concern with getting approved for insurance, Ms. Ho says. While insurance companies may ask for doctors’ reports, Ms. Ho finds insurers just want to know that clients are dealing with the condition. “They care if the issue is getting worse,” she says. “They don’t like the uncertainty and want to know if the condition is stable.” If it’s an evolving situation, the insurer may put conditions and modify the premium to a higher amount either temporarily or permanently, Ms. Ho adds.
DEANNE GAGE – THE GLOBE AND MAIL
PUBLISHED MARCH 2, 2026