How much life insurance do you need?
The right coverage amount isn’t a guess — it’s the money your family would need to replace your income, clear debts, and fund big future costs if you were gone. Here’s how to size it in a few minutes.
Start with the job the payout has to do
A life insurance payout has one purpose: to keep the people who depend on you financially whole. So the right number isn’t a round figure that sounds comforting — it’s the total of everything your income currently covers, minus what your family already has to fall back on. Four things drive almost all of it: ongoing income, debts, the mortgage, and future costs like education.
The DIME method
DIME is the most widely used quick framework for this. You add up four buckets, then subtract what you already have:
- Debt — non-mortgage debts (credit cards, car and personal loans) that would otherwise fall to your family.
- Income — your annual income multiplied by the number of years dependents would rely on it (commonly around 10 years, or until the youngest child is independent).
- Mortgage — the remaining balance, so the family can keep the home free and clear.
- Education — estimated cost per child multiplied by the number of children.
Add those four for a gross need, then subtract any existing life insurance and liquid savings to get the net cover you should buy.
Worked example
| Component | Amount |
|---|---|
| Debt (cards + car loan) | $15,000 |
| Income replacement (10 × $80,000) | $800,000 |
| Mortgage balance | $250,000 |
| Education (1 child × $80,000) | $80,000 |
| Gross need | $1,145,000 |
| Less existing cover + savings | −$20,000 |
| Recommended cover | ≈ $1,125,000 |
Run your own DIME numbers
Enter your income, debts, mortgage, and education costs to get a recommended cover figure with a breakdown.
The quicker rule of thumb
If you just want a ballpark in ten seconds, 10–15× your annual income is the common heuristic — so someone earning $80,000 lands somewhere between $800,000 and $1.2M. It’s blunt because it ignores your specific debts and existing savings, but it’s a fine sanity check against the DIME figure. When the two are far apart, trust DIME.
How long should the term be?
Match the term to how long your dependents actually need protection — usually until the mortgage is paid off and the children are financially independent. For most families that means a 20- or 30-year term. A longer term costs more per year but locks in the rate while you’re younger and healthier.
Common mistakes to avoid
- Insuring only the higher earner — a stay-at-home parent’s work has real replacement cost too.
- Picking a round number that “feels right” instead of checking it against actual obligations.
- Relying only on employer cover, which is usually small and vanishes when you leave.
- Confusing how much cover (this guide) with how much it costs — those are two different questions.
Frequently asked questions
Not necessarily. If no one depends on your income and you have no shared debts, you may not need cover at all. Life insurance matters most when other people — a partner, children, ageing parents, or a co-signed loan — would be financially worse off without you.
Size each person's cover around the gap their absence would create. If both partners earn, each typically needs enough to replace their own income and their share of shared debts. A stay-at-home parent still has real replacement value (childcare, household work), so don't insure them at zero.
Usually not on its own. Group cover is typically one to two times salary and disappears when you change jobs. It's a useful top-up, but most families need an individual policy sized to their actual obligations.
Any time your obligations change materially — a new mortgage, a child, a big income change, or clearing a large debt. A quick re-run once a year keeps the cover roughly matched to your life.