Life Insurance Coverage Calculator
Estimate the total life insurance death benefit your family would need.
Recommended Coverage:
How Much Life Insurance Do You Really Need?
Choosing a life insurance policy is one of the most critical financial decisions you will make for your family's future. The primary goal of life insurance is to ensure that your dependents are not burdened by debt and can maintain their standard of living in your absence.
The DIME Method Explained
Many financial advisors recommend the "DIME" formula to calculate coverage. DIME stands for:
- Debt: Sum of all debts other than your mortgage (car loans, credit cards).
- Income: How many years of your salary would your family need? Multiply your annual income by that number of years.
- Mortgage: The remaining balance on your home loan.
- Education: The estimated cost of sending your children to college.
Real-World Example
Imagine Sarah, who earns $75,000 a year. She has a $200,000 mortgage, two children who will eventually need $100,000 for college, and $15,000 in personal debt. If Sarah wants to provide 10 years of income replacement ($750,000), her total need would be $1,065,000. After subtracting her $40,000 in current savings, she should look for a policy worth approximately $1,025,000.
Factors That Influence Your Calculation
While this calculator provides a mathematical baseline, consider these variables:
- Inflation: The purchasing power of a dollar decreases over time. Consider adding a buffer for rising costs.
- Stay-at-Home Parents: Even if a spouse doesn't have an "income," their contribution (childcare, household management) would cost a significant amount to replace.
- Health and Age: Premiums increase as you age, so it is often better to lock in a higher coverage amount while you are young and healthy.