How Much Life Insurance Do I Need?

DIME is a simple way to work out how much life insurance a family might need. Instead of guessing, it adds up the real bills your family would face if your income stopped. Each letter is one piece of that picture.

Credit cards, car loans, personal loans and student loans. Leave the mortgage out here; it gets its own line. If you have co-signed loans, those can land on the person who signed with you, so they belong in this number too.

Your yearly income times the number of years your family would need it. This is usually the biggest piece. It covers the everyday costs that keep a household running: groceries, utilities, childcare, car payments and everything else your paycheck pays for today.

What's left on the home loan. Paying it off means your family can stay in the home without a monthly payment hanging over them. If you rent, use your yearly rent times the years your family would need housing covered.

What you'd want set aside for your kids' school, whether that's college, trade school or something else. If you have no children, or they're already through school, leave it at zero.

Take away any life insurance you already have, including coverage through work, and any savings your family could actually use. What's left is the gap new coverage would need to fill. The calculator above does this for you as you type.

Only count savings your family could really reach. Money that is set aside for a specific purpose, or that would be hard to get to quickly, may not help much in the months right after a loss.

There's no single right answer, but two approaches are common. One is to cover the years until your youngest child is grown and independent. The other is to cover the years until your spouse or partner retires and their own savings take over.

A rule of thumb many people use is ten times your yearly income. It's a fair starting point, but it doesn't know about your mortgage, your kids or what you've already saved. If you have a large mortgage and young children, ten times income can fall short. If your kids are nearly grown and the house is almost paid off, it can be more than you need. The calculator is more personal than a rule of thumb because it starts from your own numbers.

It also helps to think about what the money is for. If your partner would keep working, the goal may be to fill the gap until the kids are grown, not to replace every dollar forever. If your partner would want to stay home with young children for a while, you might plan for more years. There's no wrong answer here; the right number of years is the one that matches what your family would actually need.

Some people also leave room for things like childcare, health coverage they get through your job today, or helping an aging parent. You can add these to the income line or the debts line in the calculator, whichever is easier to think about.

A funeral and final bills come due fast, often before any other money is sorted out. The national median cost of a funeral with a viewing and burial was $8,300 in 2023¹. Cremation, a smaller service or a plan you've already paid for can change that a lot, so adjust the final expenses line in the calculator to fit your own plans.

¹ National Funeral Directors Association (NFDA), 2023 median cost of an adult funeral with viewing and burial. See Sources below.

Match the term to the need. If the main reason for coverage is the mortgage or kids at home, pick a term that covers those years. Term policies are commonly sold in 10, 15, 20, 25 and 30-year lengths, and the calculator suggests the shortest one that covers the years you enter.

Term life covers you for a set number of years and is usually the most affordable way to get a large amount of coverage. Permanent life insurance, such as whole life, lasts your entire life and builds cash value, but it costs considerably more for the same death benefit. Many families use term for the years they need the most protection. The life insurance cheat sheet compares term, whole and final expense coverage on one printable page.

Some people layer two term policies instead of buying one: a longer one for the years the kids are at home and a shorter one that ends when the mortgage is paid off. It's worth asking an agent whether that fits your situation, because it can line coverage up more closely with when you actually need it.

• Age. Rates generally go up with every birthday.
• Health. Your medical history and any current conditions.
• Tobacco. Tobacco and nicotine use usually raises rates.
• Coverage amount. More coverage costs more.
• Term length. A longer term costs more than a shorter one.

Because age is part of the price, waiting usually doesn't make coverage cheaper.

Your coverage amount and term length are the two parts of the price you control. That's one reason to start from a number built on your real needs: it helps you avoid paying for coverage you don't need, and it helps you avoid a gap your family would feel later. An agent can show you how different amounts and terms change your options before you decide.

• Answer a few questions. Start your application from the calculator and your coverage range is already filled in.
• A licensed agent compares options. One person looks at multiple options from A-rated carriers for you.
• You see your options before deciding. There's no obligation to buy.

The insurance company's underwriting decides approval and the final price, based on the factors above.

Your number isn't set in stone. It's worth running the calculator again when life changes: if you buy a home, have a child, pay off a big debt, change jobs or get a raise. Coverage that fit five years ago may not fit today. If you already have a policy and aren't sure it still matches your family's needs, a licensed agent can look at it with you.

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