The most common life insurance mistake Canadians make is not buying the wrong type — it’s buying too little. A policy that sounds substantial can leave a real gap when you work through what your family would actually need. Sizing coverage correctly starts with a structured approach, not a guess.
The DIME Method
The DIME method is a practical starting framework used by many financial advisors in Canada. It adds up four categories of financial need:
Debt. Total outstanding debts excluding the mortgage — credit cards, car loans, personal loans, lines of credit. These don’t disappear when you do.
Income. Your annual income multiplied by the number of years your family would need income support. A common range is 10 to 15 years, though this depends on the age of your dependants and how long it would take your household to become financially self-sufficient.
Mortgage. The outstanding balance on your home. Covering this allows your family to stay in the home without the pressure of mortgage payments on a reduced income.
Education. Estimated post-secondary costs for each child. These are approximate, but including them avoids leaving your children’s education unfunded if your income disappears.
Add the four together, then subtract your existing assets — savings, investments, existing life insurance — to arrive at your coverage gap. That gap is your target.
The DIME method is a starting point, not a precise formula. It gives you an order-of-magnitude figure and a structured way to think through each category.
Key Factors That Shape Your Number
Beyond the DIME calculation, several personal factors adjust the target up or down.
Number of dependants and their ages. More dependants, and younger ones, generally mean more coverage. A family with two young children needs more support over more years than a couple whose children are already working adults.
Your partner’s income. A household with a high second income that could sustain the family on its own needs less coverage than a single-income household. If your partner’s income would cover the basics but not the mortgage and education costs, coverage should bridge that specific gap.
Existing assets and savings. Life insurance exists to cover the gap between what your family would need and what they already have. Substantial savings or investments reduce the coverage required.
Business obligations. Self-employed individuals and business owners often have obligations that employees don’t — business loans, lease agreements, obligations to partners or employees. These belong in the calculation alongside personal needs.
Your income trajectory. Someone early in a high-growth career may want to account for the income they would have earned over decades. Someone approaching retirement with a paid-off home and adult children needs far less.
A Practical Example
Consider a household in Ottawa: two incomes, a mortgage with roughly half remaining, two children aged 8 and 10, and modest savings. The primary earner contributes most of the household income.
Working through DIME: outstanding personal debts plus the mortgage balance, plus estimated post-secondary costs for two children, plus 12 years of income. Subtract existing savings and a small group life insurance policy through the employer. The result is a specific coverage target that tells you exactly what size of policy to shop for — and it’s often significantly higher than what people guess before running the numbers.
What You Don’t Need to Cover
Coverage should replace what would genuinely be missed, not pad beyond that. A few things that typically don’t belong in the calculation:
- Expenses that would disappear with you (your personal spending, a second car you alone use)
- Income your family doesn’t depend on
- Assets already earmarked for the purpose (a dedicated education savings account)
Over-insuring means paying for coverage you don’t need. Under-insuring means the policy doesn’t do its job. The goal is precision.
Revisit the Number Over Time
Life changes. So should your coverage. Marriage, children, a new mortgage, a significant salary increase, or a business partnership are all reasons to recalculate. A policy that was right five years ago may be meaningfully wrong today — in either direction.
Working with a broker who reviews your coverage regularly, rather than at the point of sale only, helps keep the number accurate over time.
About Ottawabroker
Ottawabroker is an independent insurance brokerage serving Ottawa-Orleans, working with 25+ Canadian insurance providers to help clients calculate their coverage needs and compare life insurance policies across the market. Services include life, disability, critical illness, and health/dental coverage. Bilingual service (English/French), 5 days per week, 9 AM–9 PM.
Contact: (613) 863-3278 | (613) 370-6226 | ottawabroker.com
Publication Date: August 2026
Insurance Disclaimer
This article provides general educational information about life insurance coverage needs for Canadians. It is not personalized financial, legal, tax, or insurance advice. Insurance products, regulations, and individual circumstances vary. The information provided is current as of the publication date but may change. Always consult with a licensed insurance broker to assess your specific situation before making insurance decisions.