- The 10x income rule is a quick starting point, but it ignores your real debts and savings.
- The DIME method (Debt, Income, Mortgage, Education) builds a number from your own obligations.
- Subtract savings and existing coverage, and revisit the number after major life events.
Buy too little life insurance and it fails the people it is meant to protect. Buy too much and you pay higher premiums for coverage you will never need. The goal is a number that matches your family's real obligations. Here are three common ways to find it, a worked example, and a calculator you can use below.
Method 1: The income multiple
Multiply your annual pre-tax income by 10 to 15. If you earn $80,000, that suggests roughly $800,000 to $1.2 million of coverage. The appeal is speed. The weakness is that it ignores your actual debts, savings, number of dependents and how long they would need support. Treat it as a sanity check, not an answer.
Method 2: The DIME method
DIME builds your number from four categories:
- Debt: everything you owe except the mortgage, such as car loans, credit cards, personal loans and private student loans.
- Income: your annual income multiplied by the number of years your family would need it replaced, often until the youngest child is independent.
- Mortgage: the remaining balance on your home loan.
- Education: the future cost of college or other schooling for your children.
Add the four together, add final expenses such as funeral costs, then subtract what your family already has: savings, investments and any existing life insurance.
A worked example
Consider a hypothetical 35-year-old earning $80,000 with two young children. They want 10 years of income replaced, have $20,000 in non-mortgage debt, owe $250,000 on the mortgage, and want to set aside $50,000 per child for college.
| Item | Amount |
|---|---|
| Income replacement ($80,000 x 10 years) | $800,000 |
| Debts | $20,000 |
| Mortgage | $250,000 |
| Education ($50,000 x 2) | $100,000 |
| Total needs | $1,170,000 |
| Minus savings and existing coverage | -$150,000 |
| Estimated coverage gap | $1,020,000 |
This is an illustration, not a recommendation. Your own figures will differ.
Try it yourself: DIME calculator
Enter your own numbers. The result is an estimate for planning, not a quote.
Method 3: Work backward from the income your family needs
Instead of choosing a number of years, estimate the yearly shortfall your family would face after your income disappears, then work out the lump sum needed to cover it. As a rough rule of thumb, a lump sum invested conservatively might support withdrawals of around 4% a year. If your family would need $40,000 a year beyond their other income, that suggests about $1,000,000 ($40,000 divided by 0.04). This is a simplification, since returns and inflation vary, but it is a useful way to sense-check the other methods.
What people commonly forget
- Childcare. If you are a stay-at-home parent, replacing your work still has a real cost. Our guide for new parents covers this.
- Health insurance. If coverage comes through your job, your family may need to replace it.
- A spouse's reduced earnings. A surviving partner may cut back hours to manage the household.
- Final expenses. Funeral and estate costs add up quickly.
- Inflation. Costs ten or twenty years from now will be higher than today's.
What to subtract
Count the resources your family could realistically use: savings, investments, and existing life insurance. Employer coverage is useful but often ends when you change jobs, so consider whether to count it. See group life insurance through work. Survivor benefits from Social Security may also be available to eligible families, but they depend on your work record and your family's circumstances, so check with the Social Security Administration rather than assuming a figure.
When to recalculate
Revisit your number after a marriage, the birth of a child, a new mortgage, a major raise, paying off debt, or a divorce. Coverage that was right five years ago may be too much or too little today. Once you know your number, our complete term life guide explains how to choose a term length and compare policies.
Our calculators page also includes a term length helper and a quote comparison tool.