The most common answer to "how much life insurance do I need" is a multiple of salary — usually ten. It has the virtue of being memorable and the flaw of being unrelated to your circumstances.
Two households earning $95,000 can need wildly different cover. One has a paid-off house and adult children. The other has a $285,000 mortgage and a six-year-old. A single multiplier cannot distinguish them.
DIME can.
#What DIME stands for
D — Debt. Every liability that would not be forgiven at death, excluding the mortgage which gets its own line. Credit cards, car loans, personal loans, private student loans, and any business debt you have personally guaranteed.
Federal student loans in the US are generally discharged at death. Private ones frequently are not, and co-signed loans usually fall on the co-signer. Check which yours are.
I — Income. Your annual income multiplied by the number of years your family would need it replaced. The right number of years is usually until your youngest child is financially independent, or until your partner reaches retirement age — whichever is further out.
M — Mortgage. The full outstanding balance. The objective is that your family can stay in the home without a mortgage payment, which removes the largest fixed cost from a household that has just lost an income.
E — Education. Projected tuition and support per child. Current four-year totals vary enormously by institution type, and education costs have historically risen faster than general inflation, so a figure that looks generous today may not be in twelve years.
Add the four together, subtract what you already have, and you have your coverage gap.
#The refinement DIME misses
DIME does not discount future income to present value. Replacing $62,000 a year for twenty years is treated as needing $1,240,000, when in reality the payout is invested and earns a return while it is drawn down.
The more precise calculation uses the present value of an annuity at your real (inflation-adjusted) return:
PV = A × [ 1 − (1 + r)^−n ] / rAt a conservative 5% nominal return against 2.5% inflation, the real rate is about 2.4%, and twenty years of $62,000 requires roughly $980,000 rather than $1,240,000.
The life insurance calculator runs both methods and shows them side by side. DIME is the cautious upper bound; the present-value figure is the more precise one. Buying somewhere between the two is entirely reasonable.
#Getting the income figure right
Use household costs your income covers, not your gross salary. If your partner earns and would continue to, replacing 100% of your income overstates the need. If you are the sole earner, or your partner's income only covers their own costs, the share is close to 100%.
A useful test: if you disappeared tomorrow, what proportion of the household's expenses would still need funding from somewhere? That percentage, applied to your income, is what you are replacing.
#What people leave out
The non-earning parent. Full-time childcare, household management and logistics cost $35,000 to $60,000 a year to replace in most US metros. That is a real financial loss and it needs cover. Enter the replacement cost as income.
Employer group cover. It is typically one to two times salary, is not portable when you change jobs, and often ends at retirement. It is a supplement, never the plan.
Final expenses. Funeral, probate and estate settlement commonly total $15,000 to $25,000. Small relative to the rest, but it arrives immediately and in cash.
#Turning the number into a policy
Match the term to your longest obligation — usually the later of your mortgage payoff date or the year your youngest finishes education. Round up to the nearest standard 10, 15, 20 or 30 year policy.
Buy level term, where the premium is fixed for the whole period. Avoid annually renewable term, where the premium rises each year and becomes unaffordable exactly when you are most likely to need it.
Get quotes from at least three carriers. Underwriting classes vary substantially between insurers for identical health profiles, and the spread on the same $1,000,000 policy can exceed 40%.
Frequently asked questions
Is ten times salary ever the right answer?
Occasionally, by coincidence. For a household with a mortgage and young children it is usually too low; for one with no dependants and no debt it is usually far too high. Build the number from obligations rather than starting from a multiplier.
Should I include my spouse's income in the calculation?
Include it as an offset by reducing the share of household costs your income covers. If your partner earns enough to cover half the household's expenses indefinitely, you are replacing the other half, not everything.
What if my needs change later?
Most term policies allow you to reduce cover, and some are convertible to permanent cover without new medical underwriting. Buying a second smaller policy later is also common — a strategy called laddering, where policies of different terms expire as obligations end.