Life Insurance: How Much Do You Need?

Life insurance isn't about you — it's about the people who depend on your income. The right amount of coverage ensures your family can maintain their standard of living, pay off debts, cover education costs, and handle final expenses if something happens to you.

The DIME method

DIME stands for Debt, Income, Mortgage, and Education — the four pillars of coverage calculation. Add up your total debts (credit cards, car loans, student loans), multiply your annual income by the number of years your dependents need support, add your mortgage balance, and add estimated education costs for your children. The total is your baseline coverage need.

A worked example

Sarah is 35 with a $95,000 salary, two children (ages 3 and 6), a $280,000 mortgage, $25,000 in other debts, and $15,000 in estimated final expenses. She wants to replace her income for 18 years (until her youngest is self-sufficient). Using the DIME method: Income replacement ($95,000 x 18 = $1,710,000) + Mortgage ($280,000) + Debts ($25,000) + Education ($100,000 estimated for two children) + Final expenses ($15,000) = $2,130,000. Minus her existing savings and coverage ($200,000), her coverage gap is roughly $1,930,000. A $2 million 20-year term policy would cover this need.

Term vs. whole life

Term life insurance covers you for a specific period (10, 20, or 30 years) and is dramatically cheaper than whole life. For most families, term insurance that covers the years until your children are independent and your mortgage is paid off is the right choice. A healthy 35-year-old can typically get a $1 million 20-year term policy for $30-50 per month.

Whole life insurance combines a death benefit with a savings component, but the returns on the savings portion are typically mediocre. For most people, buying term and investing the premium difference produces better financial outcomes.