Life Insurance
How Much Life Insurance Do You Actually Need? A Simple Formula
Move past 'ten times your salary' rules of thumb with a needs-based calculation that accounts for debts, dependents, and existing assets.
The right coverage amount is rarely a round multiple of your salary. A proper calculation looks at the financial gap your death would leave, not your paycheck in isolation.
The DIME method
Debts, Income replacement, Mortgage, Education. Add the four numbers, subtract liquid assets, and you have a defensible coverage target.
Example: a 38-year-old with two kids
$25,000 consumer debt + 10 years of $80,000 income + $320,000 mortgage + $200,000 college fund = $1,345,000. Subtract $120,000 in 401(k) and brokerage assets and the target is roughly $1.2M of term coverage.
Don't forget the stay-at-home parent
Replacing unpaid caregiving with paid help typically runs $40,000–$70,000 per year. A 15- or 20-year term policy on the non-earning spouse is one of the most underbought policies in the market.
Frequently asked questions
Should I include Social Security survivor benefits?
Yes — they meaningfully reduce the gap, especially for households with young children. The SSA's online estimator gives a quick monthly figure to subtract from your income-replacement calculation.
Does my employer's group policy count?
Only partly. Group life is rarely portable, often capped at 1–2× salary, and disappears the moment you leave the job. Treat it as a bonus, not the foundation of your coverage.
Related reading
How Much Life Insurance Do I Need? The DIME Method Explained
A step-by-step way to size your death benefit using the DIME method — debts, income replacement, mortgage, and education — with worked examples for three household types.
Term vs. Whole Life Insurance: Which Policy Saves You More?
A clear, numbers-first comparison of term and whole life — when each makes sense, what they really cost over 30 years, and how to avoid the most expensive mistakes.