The 5-Minute Guide to Calculating Your Life Insurance Needs

One of the most common questions people ask is, “How much life insurance do I actually need?”

The answer isn’t a one-size-fits-all number. It depends entirely on your financial obligations, your family’s lifestyle, and the length of time you want the policy to replace your income.

Here is a simple, effective method—often called the DIME method—to help you determine a starting point for your coverage amount.

The D.I.M.E. Calculation Method

The DIME acronym stands for the four key financial areas you need to cover:

D is for Debt (Non-Mortgage)

List all your outstanding debts that you don’t want your family to inherit or worry about.

Student Loans (if co-signed)

Car Loans

Credit Card Debt

Personal Loans Total Debt Cost: $[Insert Dollar Amount]

I is for Income Replacement

This is the largest part of the calculation. You need to estimate how many years your family would need to replace your income to maintain their current lifestyle.

Recommended:* 5 to 10 years of your current income.

Example: If you earn $75,000 and want 7 years of coverage: $75,000 x 7 = $525,000. Total Income Cost: $[Insert Dollar Amount]

M is for Mortgage

Ensure the policy includes enough funds to pay off your primary residence. Eliminating this debt is the fastest way to relieve financial stress on a grieving family.

Note: If you don’t own a home, you can skip this step. Total Mortgage Cost: $[Insert Dollar Amount]

E is for Education

If you have children, you likely have future college costs in mind. Estimate how much you want to set aside for their higher education.

Tip: Remember that education costs will be in the future, so factor in potential inflation. Total Education Cost: $[Insert Dollar Amount]

Putting It All Together: Your Coverage Goal

Add up the four categories to get your initial life insurance coverage goal:

D + I + M + E = YOUR TOTAL COVERAGE NEED

Example Calculation:
- Debt: $20,000
- Income (7 years): $525,000
- Mortgage: $250,000
- Education: $100,000
- Total Need: $895,000 (Round up to a $900,000 or $1,000,000 policy for simplicity)

Ready to Secure the Right Amount?

While the DIME method is a great starting point, we can work with you to tailor a policy that precisely fits your unique situation. We operate in 48 states and specialize in finding the most affordable coverage options.

Start your free quote and lock in your rate today! thecoicoubrokerageinsurances.com/contact-us/