How Much Life Insurance Do You Really Need?
"Ten times your income" is the rule of thumb you'll hear most. It's a decent starting point, but it ignores your mortgage, how old your kids are, what you already have saved and whether your spouse works. Twenty minutes with a worksheet gets you a much better number.
Method 1: The quick DIME count
DIME stands for the four big things a policy usually needs to cover. Add them up:
| Letter | Stands for | What to count |
|---|---|---|
| D | Debt | Car loans, credit cards, personal loans, medical bills, plus about $10,000 to $15,000 for final expenses |
| I | Income | Your yearly take-home pay times the number of years your family would need it |
| M | Mortgage | The remaining balance on your home loan |
| E | Education | What you'd like set aside for each child's schooling or training after high school |
Method 2: The full needs worksheet
This version also subtracts what's already in place, so you don't buy more than you need.
Step A: What your family would need
- Final expenses (funeral, burial or cremation, last medical bills)
- All debts you'd want paid off, including the mortgage
- Income replacement: yearly amount × years needed
- Childcare costs if a stay-at-home parent is the one insured
- Education fund for each child
- An emergency cushion (6 months of expenses is common)
Step B: What's already there
- Savings and investment accounts (not retirement accounts you'd want left alone)
- Existing life insurance, including group coverage at work
- Social Security survivor benefits for children and a spouse caring for them
Step C: Subtract
Step A − Step B = the coverage gap. That's the amount a new policy should fill.
A worked example
Marcus, 38, earns $62,000 a year (about $50,000 take-home). His wife works part-time. They have two kids, ages 6 and 9, and owe $185,000 on their house.
| Need | Amount |
|---|---|
| Final expenses | $15,000 |
| Mortgage balance | $185,000 |
| Truck loan and credit cards | $28,000 |
| Income: $50,000 × 12 years (until the youngest is 18) | $600,000 |
| Education: $25,000 × 2 kids | $50,000 |
| Total needs | $878,000 |
| Minus savings | − $22,000 |
| Minus group life at work (1× salary) | − $62,000 |
| Coverage gap | $794,000 |
Rounding to a standard amount, Marcus might look at a $750,000 or $800,000, 20-year term policy. If the budget is tight, a $500,000 policy that covers the mortgage, debts and several years of income is still a huge improvement over $62,000.
Fine-tuning your number
- Income years: Count until your youngest finishes school, or until your spouse reaches retirement age if they'd struggle to work.
- Inflation: If you're covering 15 years or more, add 10 to 20 percent so the money keeps up.
- Group coverage: Count it, but remember it usually ends if you leave the job.
- Two policies can be cheaper than one: a 30-year policy for the mortgage and a 15-year policy for the kids' years often costs less than one big 30-year policy.
- Older buyers: If you're 60 or older with no dependents, your number may simply be final expenses plus any debts, often $10,000 to $35,000.
Quick reference
| Situation | Common coverage range |
|---|---|
| Single, no dependents, wants funeral covered | $10,000 – $50,000 |
| Married, no kids, shared mortgage | Mortgage + 3–5 years of income |
| Young children at home | 10–15× income, adjusted with the worksheet |
| Stay-at-home parent | $250,000 – $500,000 (cost to replace care) |
| Retired, ages 60–85 | Final expenses + remaining debts |
Got your number? See what it costs.
Bring your worksheet total and get real prices from several carriers, side by side. If the number feels too high for your budget, we'll show you smart ways to get close.
This guide is general education, not tax, legal or financial advice. Product features, issue ages and prices vary by carrier and state and change over time.