Life Insurance Needs Calculator
Estimate the coverage your family needs to maintain their lifestyle and cover future expenses.
How to Calculate Your Life Insurance Needs
Determining the right amount of life insurance is one of the most critical financial decisions you will make for your family. The goal is to provide a financial safety net that allows your beneficiaries to pay off immediate debts and maintain their standard of living for years to come.
The DIME Method
Many financial experts recommend the DIME method, which simplifies the calculation into four categories:
- Debt: Sum of all debts except your mortgage (car loans, credit cards, student loans).
- Income: How much of your salary do your dependents rely on? Multiply this by the number of years until your youngest child reaches 18 or 22.
- Mortgage: The total payoff amount for your primary residence.
- Education: The estimated cost of sending your children to college or vocational school.
Why Income Replacement Matters
Income replacement is often the largest portion of a life insurance policy. If you earn $75,000 and want to provide for your family for 10 years, you might assume you need $750,000. However, this calculator accounts for the total burden, including final expenses and existing assets like current 401(k) balances or existing group life insurance through your employer.
If John earns $60,000 per year and wants to protect his family for 10 years ($600,000), has a $200,000 mortgage, $10,000 in credit card debt, and $15,000 for funeral costs, his total need is $825,000. If he has $50,000 in savings, his Net Insurance Need is $775,000.
Factors That Influence Your Coverage
Inflation, lifestyle changes, and the age of your children significantly impact how much coverage you should purchase. It is generally better to be slightly over-insured than under-insured, as the difference in monthly premiums for an extra $100,000 of term coverage is often minimal.