How much life insurance do you actually need?

Most people either guess or accept whatever number an agent suggests. Both are bad methods. Here are the three real ones, from quickest to most accurate.

Method 1: The income multiple (fast, rough)

Multiply your annual income by 10 to 15. A $70,000 earner lands at $700,000–$1,050,000.

It's popular because it takes five seconds, and it's a reasonable starting point. Its weakness is that it ignores everything specific about you: your mortgage balance, whether you have four kids or none, or the $200,000 already sitting in savings. Use it as a sanity check, not a final answer.

Method 2: DIME (the practical standard)

DIME builds the number from your actual obligations:

• D — Debt. Credit cards, car loans, student loans, personal loans. Everything except the mortgage.
• I — Income. Your annual income times the number of years your family needs support. Until the youngest child finishes school is a common anchor.
• M — Mortgage. The remaining balance, so the house can be paid off outright.
• E — Education. Roughly $100,000 per child for college, adjusted for the kind of school you expect.

Add those four, then subtract existing savings, investments, and any coverage you already have. The remainder is your gap.

Worked example: $25,000 debt + ($70,000 × 15 years = $1,050,000) + $240,000 mortgage + $200,000 for two kids = $1,515,000. Subtract $150,000 in savings and $140,000 of work coverage, and you need roughly $1.2 million.

That number often startles people. It shouldn't — replacing an income for 15 years is genuinely expensive, and term insurance is priced so that a number like that is usually affordable.

Method 3: Needs-based (most accurate)

Instead of a multiple, model what the family actually spends. Take annual household expenses, subtract the surviving spouse's income and any survivor benefits, and you get the true annual shortfall. Multiply by the years it lasts, then add one-time costs: funeral expenses, an emergency fund, debt payoff, education.

This is the method a good advisor uses, because it catches things the shortcuts miss — a spouse who'd need to reduce work hours, childcare that suddenly must be purchased, or a family that could genuinely downsize and needs less than the formulas suggest.

Adjust for your life stage

• 20s, no kids: often modest coverage, but this is the cheapest insurability you'll ever buy.
• 30s–40s with young children: peak need. Mortgage, dependents, and decades of income at risk simultaneously.
• 50s: need usually starts declining as the mortgage shrinks and kids become independent.
• 60s+: often shifts from income replacement to final expenses, estate liquidity, or leaving a legacy.

Two common mistakes

Buying only what's comfortable this month. If the honest number is $1M and you buy $250,000 because it fits a $20 budget, you've solved a budgeting problem, not a protection problem. Term insurance is cheap enough that the full amount is often within reach — price it before you assume otherwise.

Counting work coverage as permanent. Group life typically ends with the job. Build your plan on a policy you own.

You can layer it

Needs aren't flat over time, so coverage doesn't have to be either. A common approach is stacking: a 30-year policy sized to the mortgage, plus a 20-year policy covering the child-raising years. The second expires when the need does, and your total premium drops without leaving a gap. This is called laddering, and it's usually cheaper than one large policy held for 30 years.