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Ask five advisors how much life insurance you need and you'll hear five formulas. The good news: they mostly converge on similar numbers, and the calculation takes ten minutes. The bad news: most insured Americans carry far less than any formula suggests — the industry average payout wouldn't replace three years of a median income.
Start With the Quick Estimate: 10-12x Income
The oldest rule of thumb says to carry 10 to 12 times your annual income. Earning $80,000? That's $800,000 to $960,000 of coverage. It's crude — it ignores debts, savings, and how many kids you have — but it gets you to the right order of magnitude instantly, and it's dramatically better than the $250,000 default many people pick because it sounds like a lot.
The Better Way: DIME
DIME walks through the four things your income actually covers:
- D — Debt: Every balance that survives you (or burdens a co-signer): credit cards, car loans, student loans, personal loans. Skip the mortgage — it gets its own letter
- I — Income replacement: Annual income times the number of years your family needs support. A common target: until your youngest turns 21
- M — Mortgage: The full remaining balance, so your family keeps the home without your paycheck
- E — Education: Future college or training costs per child — $100,000-150,000 per child is a reasonable 2026 planning figure for in-state public programs
Then Subtract What You Already Have
- Liquid savings and taxable investments your family could actually spend
- Existing individual policies
- Group life through work — but count it cautiously, since it usually ends when the job does and averages only 1-2x salary
Adjustments Most Calculators Miss
- A stay-at-home parent needs coverage too — replacing childcare, transport, and household management runs $30,000-60,000 a year; $250,000-500,000 of coverage is a sensible range
- Single with no dependents? You may need very little — enough for debts and final expenses — unless someone co-signed your loans or you want to lock in insurability while young and healthy
- Special-needs dependents change the horizon from "until age 21" to "lifetime," which usually points toward some permanent coverage feeding a special needs trust
- Don't forget final expenses — add $15,000-25,000 for funeral and end-of-life medical costs
Matching the Number to a Term Length
Coverage amount is half the decision; duration is the other half. Match the term to your longest obligation: a 3-year-old means at least 20 years of exposure; a 28-year mortgage suggests a 30-year term. When in doubt, go longer — the price difference between 20- and 30-year terms is smaller than most people expect, and you can always cancel a term policy with no penalty.
Sanity-Check Your Number
However you calculate it, test the result against the purpose: if you died tonight, could your family pay off the house, stay on top of bills, keep the kids' plans intact, and take a couple of years to adjust without financial panic? That's the standard the number has to meet — not a formula's approval.
Want a second opinion on your math? Chat with Julia, our life insurance expert. Tell her your situation and she'll walk the DIME calculation with you, free.
Ensureing Team
2026-06-10
