Ask an agent how much life insurance you need and you’ll usually hear “ten times your income.” It’s a fine opening guess and a poor final answer. It ignores whether you have a mortgage, whether your partner works, how old your kids are, and what you’ve already saved.
The better approach takes twenty minutes and produces a number you can actually defend.
The DIME Method
Add up four things.
D — Debt. Every balance that doesn’t disappear when you do: credit cards, car loans, student loans (federal loans are usually discharged at death; private ones frequently are not), and any debt you co-signed.
I — Income replacement. Your annual income multiplied by the number of years your household would need it. Be honest about that number: until the youngest child finishes school is a common answer, and it’s often 15-20 years, not 10.
M — Mortgage. The outstanding balance. Whether you want the policy to clear it entirely or just cover payments for a stretch is a real decision — clearing it removes the largest fixed cost your family has.
E — Education. Roughly $110,000 per child for four years at an in-state public university at current prices, considerably more for private.
Add those four, subtract existing savings and any coverage you already hold, and you have a defensible number.
A Worked Example
A 38-year-old earning $85,000, married with two children aged 6 and 9:
| Component | Amount |
|---|---|
| Debt (car + credit cards) | $28,000 |
| Income replacement (15 years) | $1,275,000 |
| Mortgage balance | $310,000 |
| Education (2 children) | $220,000 |
| Subtotal | $1,833,000 |
| Less: savings and 401(k) | −$145,000 |
| Less: employer group policy | −$170,000 |
| Coverage needed | ≈ $1,520,000 |
Round to $1.5 million. Note how far that sits from “10x income” ($850,000) — the gap is mostly the mortgage and the length of the income replacement window.
Two Things People Systematically Undercount
The stay-at-home parent. A non-earning spouse still represents a large replaceable cost: childcare, transport, household management. Replacing that commercially runs $40,000-$65,000 a year in most metros. Coverage on a stay-at-home parent is not sentimental — it’s a real liability.
Employer coverage. Group life through work is typically one to two times salary, and it ends the day the job does. It’s a supplement, never a plan. Count it, but don’t build around it.
Why Term Is Usually the Answer
The coverage amounts above look expensive until you price them as term insurance. A healthy 38-year-old can often buy $1.5 million of 20-year level term for somewhere in the region of $60-$90 a month. The same face amount as whole life would run several times that.
The logic of term is that the need is temporary. In twenty years the mortgage is smaller, the children are through school, and the retirement accounts have compounded. The obligation shrinks; the policy expires alongside it. Permanent insurance solves a different problem — estate liquidity, a lifelong dependent, a business buy-sell agreement — and if you don’t have that problem, you’re paying for it anyway.
Getting the Term Length Right
Match the term to your longest obligation, not your shortest. If your youngest is 6, a 20-year term carries you to their college graduation. A 10-year term ends while they’re in middle school, and re-buying coverage at 48 costs substantially more than locking it in at 38 — assuming your health still qualifies you, which is the part nobody plans for.
What to Do Next
- Run the DIME numbers with actual balances, not estimates.
- Subtract what you genuinely have, and count employer coverage separately.
- Price 20- and 30-year term for the resulting amount before considering anything permanent.
- Get quotes from at least three carriers — underwriting classes vary enough between insurers that the same person can be rated differently.
For the mechanics of term versus whole life, see life insurance explained. For carrier-by-carrier pricing, our best life insurance companies comparison covers underwriting speed and financial strength ratings.