Who this is for
Parents of a new child, and parents who have a policy from years ago and have not looked at it. Also anyone whose only coverage is through an employer. This guide explains how to think about the amount and the type. It does not recommend a product or an insurer.
The five questions
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What would need replacing, and for how long? Start with the income the household depends on and the number of years until the children are independent. Add the cost of child care that a surviving parent would need in order to keep working. This is the largest part of the number for most families.
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What debts would remain? The mortgage, car loans, a line of credit, a business loan with a personal guarantee. A policy can be sized to clear them, or the family can plan to keep paying them from replaced income. Either is a choice; neither is automatic.
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What do you already have? Workplace group coverage is often one or two times salary and usually ends when you leave the job. If the employer pays the premium, it is a taxable benefit on your T4. Savings, a spouse’s income and existing policies all reduce the gap.
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A period, or for life? Term insurance covers a fixed period, such as 10 or 20 years, and the premium may rise at renewal. It fits a need that ends, like raising children or paying a mortgage. Permanent insurance covers your whole life and usually builds cash value, at a higher premium. It fits a need that does not end. Neither is better in general.
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Who is the beneficiary? Naming a person means the money goes directly to them, outside the estate. Naming a minor child directly can tie the money up until a court-appointed trustee or the child’s majority. A will or trust arrangement is the usual answer. That is legal work. The FCAC describes the death benefit as a one-time, tax-free payment.
How the pieces connect
Life insurance protects the plan; it is not the plan. The RESP, the TFSA and the RRSP are where the family’s money grows. The policy makes sure those plans can continue if a parent dies. Benefits like the Canada child benefit continue to the surviving parent, based on their income, so they are part of the picture too.
One thing many people do not realize
The question is not how much you can afford to buy. It is what would be missing. Add up the income the household would lose, the mortgage and debts, child care and education. Then subtract what you already have: savings, workplace coverage, a spouse’s income. The gap is the number to insure. For many young families it is large, and for some it is small.
What to prepare
- Household income and the years until each child is independent
- Mortgage and other debt balances
- Benefit booklets from work, showing the life coverage amount
- Any existing policies, with the beneficiary named
When professional help may make sense
A self-employed parent with no group coverage, or a parent with a health history that affects insurability. A blended family. A family business where the loss of one person affects income and debts together.
How Rex Tax may be able to help
Parminder Singh Oberoi can walk through the questions above and the options through Punjab Insurance Agency Inc. The tax side, including benefits and beneficiaries, we handle in the same conversation. Wills and guardianship need a lawyer or notary.
Official sources
- Financial Consumer Agency of Canada: Life insurance
- Financial Consumer Agency of Canada: Getting an insurance policy
- Canada Revenue Agency: Group term life insurance policies, employer-paid premiums
This guide is general information, not advice about your situation. It reflects the rules for the 2026 tax year. It has not yet been reviewed by a practitioner. The information was checked against the official sources listed above on the date shown. Rules change. Check the official sources above or ask us. How we prepare these guides.