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 financially secure if you are no longer there to provide for them.
Understanding the DIME Formula
Many financial advisors recommend the DIME method to calculate coverage:
Debt: Calculate all your outstanding debts, excluding your mortgage.
Income: Multiply your annual salary by the number of years your family will need support (common practice is 10 to 15 years).
Mortgage: Include the total payoff amount for your home.
Education: Factor in the future cost of tuition for your children.
Realistic Example
Consider Sarah, a 38-year-old marketing manager earning $80,000 annually. She has a $300,000 mortgage and two young children. Using the calculator:
Income Replacement (10 years): $800,000
Mortgage & Debt: $320,000
College Fund: $100,000
Funeral Costs: $15,000
Total Needed: $1,235,000
If Sarah already has a $100,000 policy through work and $50,000 in savings, her net requirement is $1,085,000. In this case, a $1.1 million term life policy would be a suitable choice.
Factors to Re-evaluate
Life insurance isn't a "set it and forget it" product. You should recalculate your needs when major life events occur, such as the birth of a child, purchasing a new home, a significant promotion, or when your children graduate from college and become financially independent.
function calculateCoverage() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value) || 0;
var yearsIncome = parseFloat(document.getElementById("yearsIncome").value) || 0;
var totalDebt = parseFloat(document.getElementById("totalDebt").value) || 0;
var educationCost = parseFloat(document.getElementById("educationCost").value) || 0;
var funeralCost = parseFloat(document.getElementById("funeralCost").value) || 0;
var existingAssets = parseFloat(document.getElementById("existingAssets").value) || 0;
var incomeReplacement = annualIncome * yearsIncome;
var totalNeeds = incomeReplacement + totalDebt + educationCost + funeralCost;
var finalCoverage = totalNeeds – existingAssets;
if (finalCoverage < 0) {
finalCoverage = 0;
}
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
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});
document.getElementById("coverageTotal").innerText = formatter.format(finalCoverage);
var breakdownText = "This includes " + formatter.format(incomeReplacement) + " for income replacement, " +
formatter.format(totalDebt) + " for debt, and " +
formatter.format(educationCost + funeralCost) + " for other expenses, minus " +
formatter.format(existingAssets) + " in current assets.";
document.getElementById("resultBreakdown").innerText = breakdownText;
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