How Much Life Insurance Do You Need?

How much life insurance do you need? If you ask five advisors you will get five answers — but they almost all start from the same framework. Add up what your family would spend, subtract what they already have, and insure the gap. The DIME method packages that into four buckets, and this guide walks through it with real numbers, plus a life insurance needs calculator that does the arithmetic for you.

The DIME method, step by step

• Debt: every balance that would land on your family — credit cards, auto loans, personal loans
• Income: 10 to 12 times your gross annual earnings, to replace your paycheck for a decade or more
• Mortgage: whatever principal remains, so the house is paid off outright
• Education: projected college costs for each child, inflated to the year they enroll

A worked example: the Nguyen family

Mia, 35, earns $80,000; her partner stays home with their two kids. They owe $25,000 on cars and cards, have $300,000 left on the mortgage, and want two years of in-state college funded. Here is the DIME math:

Income replacement: $80,000 x 10 = $800,000
Debts (auto, cards, loans): $25,000
Mortgage payoff: $300,000
Education for two kids: 2 x $70,000 = $140,000
Final expenses: $15,000
Total need: $1,280,000
Minus savings and group life: –$100,000
Recommended coverage: ~$1,180,000

Notice what dominates: income replacement is nearly two-thirds of the need. That is why the number is driven by your salary far more than by your debts. A $1.18 million 20-year term policy for a healthy 35-year-old runs about $65 to $85 a month in 2026.

Adjust for savings, benefits, and taxes

• Subtract retirement accounts, brokerage holdings, and cash — they are already wealth
• Subtract the death benefit on your employer group life policy, usually 1 to 2 times salary
• Remember Social Security survivors benefits: a spouse caring for children can receive benefits until the youngest turns 16, which can replace $15,000 to $30,000 a year
• The death benefit itself is generally income-tax-free, so no tax haircut is needed

How the number changes with age and stage

The need is not static. Every new child, mortgage, or salary bump should trigger a review — most people are significantly underinsured right after their income grows, because coverage rarely grows with it.

Common mistakes people make

• Insuring only the higher earner — the stay-at-home parent's unpaid work can cost $40,000 to $70,000 a year to replace
• Sizing coverage to the average policy size instead of their own DIME math
• Forgetting to subtract existing savings, which leads to buying 20% more coverage than needed
• Ignoring inflation on college costs — $70,000 today is more like $100,000 in 18 years

Sizing your policy

Run the DIME calculation for both adults, subtract existing coverage, and buy term policies sized to the result. For most families that lands between $1 million and $1.5 million on the primary earner — far above the typical employer benefit of one to two times salary.

Quick Answer

Estimate your life insurance needs with the DIME method: debts, income, mortgage, and education. Worked examples show how the number changes by age and family. This guide explains the formula in plain English, walks a worked example with real numbers, shows the mistakes to avoid, and links the free calculator so you can run your own scenario in under a minute.