Life Insurance Needs Calculator
Determine how much life insurance coverage you need based on your income, debts, dependents, and how many years of support they'd need.
Life insurance coverage need is calculated to ensure your dependents maintain their standard of living if you die unexpectedly. Several methods exist, each making different assumptions about investment returns, inflation, and what costs truly need replacing.
DIME Method (most comprehensive): Coverage = Debt + Income + Mortgage + Education
Where:
- Debt = all non-mortgage debts: car loans, student loans, credit cards
- Income = annual income × years until youngest child is financially independent (or until retirement age for a spouse)
- Mortgage = remaining mortgage balance (to pay off the home)
- Education = projected college costs for each child
Income Replacement Method: Coverage = Annual Income × 10 to 15
Human Life Value Method: Coverage = Present Value of future earnings = Annual Income × (1 − Tax Rate) × [1 − (1+r)^(−n)] ÷ r
Where r = discount rate (3–5%) and n = years to retirement.
What each variable means:
- Income multiplier (10–15×): Reflects that if proceeds are invested at 5–7%, they generate replacement income indefinitely; lower multiplier for shorter income needs, higher for young families
- DIME vs. simple multiplier: DIME is more precise but requires current debt and mortgage information; the multiplier is a quick estimate
- Term life vs. whole life: Term life (20–30 year term) is almost always the right choice for pure income protection; whole life costs 5–10× more for the same coverage
Reference: average coverage by life stage:
- Young adult, no dependents: $250,000–$500,000 (covers debts + burial)
- Married, no children: 5–7× income
- Young family with children: 10–15× income + mortgage + education
- Pre-retirement, children grown: 3–5× income to protect spouse
Worked example: 34-year-old, $85,000/year income. Spouse stays home. Two children (ages 3 and 6). Mortgage balance: $280,000. Car loan: $18,000. Credit cards: $7,000. College fund needed: $100,000 × 2 = $200,000. Years of income to replace: 18 (until youngest finishes college).
- Debt = $18,000 + $7,000 = $25,000
- Income = $85,000 × 18 = $1,530,000
- Mortgage = $280,000
- Education = $200,000
- DIME Total = $2,035,000
A 20-year term policy for $2,000,000 costs a healthy 34-year-old approximately $80–$130/month — protecting the family completely for the cost of a cable TV bill.