“How much life insurance do I need?” is one of the most common questions we hear. People often expect a single number. There isn’t one. The right amount depends on who relies on you and what they would have to pay for without you.
You may have heard a rule of thumb like “buy several times your salary.” The NAIC (National Association of Insurance Commissioners, the group of state insurance regulators) notes that some experts suggest a multiple of income, but it recommends working through your actual needs for a more accurate figure. This article shows you one simple way to do that.
Start with the right question
Life insurance replaces money. So the real question is: if you died tomorrow, what bills and goals would your family still face, and how much money would it take to cover them?
The NAIC lists the kinds of things to weigh: how much income you provide, who depends on you, your debts, final expenses, education costs, and inflation. The DIME method organizes those into four buckets.
The DIME method
DIME stands for Debt, Income, Mortgage and Education. You estimate each one, add them up, then subtract what you already have.
D is for debt
Add up the debts your family would need to pay off or keep paying. Leave the mortgage out for now; it has its own step.
- Car loans
- Credit card balances
- Personal or student loans that would not be forgiven
- An estimate for final expenses, such as a funeral and burial or cremation
I is for income
This is usually the biggest piece. Ask: how many years would your family need your income replaced?
Multiply your yearly income by that number of years. Many people pick the number of years until their youngest child is grown, or until a spouse would reach retirement.
Use the income your family actually relies on. If part of your pay goes to your own commuting, lunches and retirement contributions, your family may need a bit less than your gross pay. Keep it simple, though. A round number is fine.
M is for mortgage
Add the balance left on your mortgage. Paying it off means your family could stay in the home without that monthly payment. If you rent, you might instead add a few years of rent, or leave this at zero and let the income step cover housing.
E is for education
If you want to pay for your children’s education after high school, add an estimate for each child. You decide what “education” means for your family: a trade program, community college, a four-year school, or nothing at all. There is no right answer here.
Then subtract what you already have
Now take your DIME total and subtract:
- Life insurance you already own, including coverage through work
- Money you have set aside that your family could use for these needs
What is left is a rough estimate of the new coverage you may want.
One note on coverage through work. It is real coverage, but it often ends if you leave that job. Many people count it, but do not rely on it alone.
A worked example
This example is made up. The numbers are round on purpose.
| Step | Amount |
|---|---|
| Debt (car loan, cards, final expenses) | $40,000 |
| Income ($60,000 × 15 years) | $900,000 |
| Mortgage balance | $210,000 |
| Education (two children) | $100,000 |
| DIME total | $1,250,000 |
| Minus existing coverage through work | −$120,000 |
| Minus money set aside | −$30,000 |
| Estimated need | $1,100,000 |
That number may look large. That is normal. Replacing fifteen years of income adds up fast. You do not have to buy all of it, and you can buy it in more than one policy. But it helps to see the full picture before you decide.
What DIME leaves out
DIME is a starting point, not a final answer. A few things it does not handle well:
- Inflation. Fifteen years of income will cost more in year fifteen than in year one. The NAIC lists inflation among the things to consider.
- A stay-at-home parent. If a parent does not earn a paycheck, the family would still have to pay for child care and household work. That has a real cost. Put a number on it in the income step.
- Taxes and interest. The IRS says life insurance proceeds paid because of the insured person’s death are generally not included in gross income. But interest earned on those proceeds is taxable. Ask a tax professional how this applies to you.
- Special situations. A family member with a disability, a business, or a blended family can change the math a lot. These are good reasons to talk with an attorney and a licensed agent together.
Try the calculator
We built a free life insurance needs calculator that uses the DIME method. It shows every input and every step of the math. It runs in your browser, asks for no email address, and stores nothing. It is an educational estimate, not a quote.
Review it every few years
Your need changes as life changes. The NAIC suggests reviewing your coverage every few years as your income and family needs change. Good times to revisit:
- Marriage, divorce, or a new child
- Buying a home or paying off a mortgage
- A big raise, a job change, or losing coverage through work
- Children finishing school
Then decide what kind of coverage
Once you have a number, the next question is what kind of policy fits. Term coverage lasts for a set number of years. Permanent coverage is meant to last for life. Each has tradeoffs. We explain them in term vs. permanent life insurance, honestly.
And when you buy, name your beneficiaries carefully. Our article on the beneficiary mistakes we see most covers what to avoid.
If you want help walking through your numbers, book a conversation. We will show you the math in writing, and you decide on your own time.
Sources
- NAIC — Life Insurance (consumer information) (accessed 2026-10-31)
- Washington State Office of the Insurance Commissioner — Learn how life insurance works (accessed 2026-10-31)
- IRS — Life insurance & disability insurance proceeds (accessed 2026-10-31)