How much life insurance do I need?

There is no single right number. The goal is simple: enough money so the people who depend on you can keep going without your income. Here are two quick ways to get a starting estimate. You can do both in a few minutes with a pencil.

Method 1: The 10x income rule

Multiply your yearly income by 10.

This is rough, but it is fast. If you earn $45,000, the rule points to about $450,000 of coverage. Some people adjust it: add more if you have young kids or a mortgage, or use less if your children are almost grown.

The rule ignores debts and savings, so treat it as a first guess, not a final answer.

Method 2: The DIME method

DIME stands for Debt, Income, Mortgage, Education. Add the four pieces together.

• Debt: all debts other than your home, plus funeral costs (often $8,000 to $12,000).
• Income: your yearly income multiplied by the number of years your family would need it. Many people use the years until the youngest child turns 18 or finishes school.
• Mortgage: the balance left on your home loan, if you own. Renters can use a few years of rent instead.
• Education: what you would like to set aside for each child’s schooling.

Then subtract what you already have: savings, existing life insurance (including a policy through work), and other assets your family could use.

A worked example

Meet a family with two kids, ages 4 and 7. One parent earns $45,000 a year. They rent an apartment for $1,400 a month.

• Debt: $6,000 car loan + $3,000 credit cards + $10,000 funeral = $19,000
• Income: $45,000 x 14 years (until the youngest is 18) = $630,000
• Mortgage: they rent, so 3 years of rent as a cushion: $1,400 x 36 = $50,400
• Education: $20,000 per child x 2 = $40,000

Total need: $739,400

Now subtract what they already have: $4,000 in savings and a $45,000 policy through work = $49,000.

Estimated coverage: about $690,000. Many people round to a common policy size, such as $500,000 or $750,000, and choose a term that lasts until the kids are grown (20 years in this case).

Notice how different the two methods are: $450,000 versus $690,000. That is normal. The 10x rule is quick; DIME is closer to real life because it uses your actual bills.

Things that change the number

• Two earners? Run the numbers for each parent. A stay-at-home parent also counts: replacing childcare and household work costs money.
• Sending money abroad? Include it in the income line if your family there depends on it.
• Budget? If the full amount is out of reach, some coverage is better than none. You can add more later.

Important

This article is general education, not personalized advice. The estimates above are starting points, not recommendations. A personalized recommendation about the amount and type of coverage that fits your family can only come from a licensed insurance professional.