Case Study: Identifying How Much Life Insurance Is Needed - Li and Sunny's Story

Li and Sunny are married with two children, Jack (four years old) and Lily (one year old). Sunny is a stay-at-home mom. She doesn’t plan on returning to work until Lily is six  years old and in grade one. They have no money in RRSPs or TFSAs; any extra money has been used to pay down their mortgage.

  • Income and expenses:
    • Li earns $80,000 per year. Sunny expects to earn $50,000 per year, once she returns to work
    • Their annual expenses are $60,000
  • Liabilities:
    • $250,000 mortgage
    • $50,000 owing on their line of credit (LOC)
  • Savings:
    • None
    • Li has $20,000 of unused RRSP contribution room
  • Current life insurance policies:
    • Li has two times his salary ($160,000 through his group policy at work)
    • Sunny has no life insurance

Their Question

What if one of us dies? Do we have enough life insurance?


They decided to do some research online and discovered that most people purchase life insurance for the following reasons:

  • Final expenses
  • Debt repayment
  • Ongoing living expenses for survivors
  • Funding children’s education
  • RRSP top-up (unused contribution room)
  • Charitable donations

After assessing their own situation, they came up with the following analysis.

Life Insurance Covers…

Types of Fees and Costs

Estimated Need

Final expenses

Funeral, administration, probate, lawyer, and accountant


Debt repayment

Mortgage and LOC


Ongoing income for Li

Living expenses and child care and costs

($12,000/year for 17 years)

Ongoing income for Sunny

Living expenses and child care costs

($25,000 x 17 years, until Lily is 18, plus $35,000 x 5 years, for child care until Lily is in school)

Funding children’s education

Post-secondary education


RRSP top-up contribution

RRSP contribution room


Charitable donations

Not applicable



They calculated their life insurance needs to be as follows.


If Li Dies…

If Sunny Dies…

Final expenses



Debt repayment



Ongoing income needs



Children’s education funding



RRSP top-up contribution



Total need



Less existing life insurance




Li and Sunny now realize they do have an insurance need in the event of an unexpected death. Other factors they realize will impact their amounts are impact of inflation and rate of return on any lump-sum payment. They plan to review their situation with a financial planner, to confirm their calculations, explore different types of insurance and evaluate from whom they should purchase life insurance.