Why Getting the Right Amount Matters
Most people guess when it comes to life insurance. Some pick a round number — "$500,000 sounds like a lot." Others just take whatever their employer offers. And a surprising number of people skip it entirely, telling themselves they'll sort it out later.
All three are mistakes. Life insurance isn't about picking a big number — it's about replacing your economic value to your family. Get too little and your family struggles. Get too much and you waste thousands in premiums every year.
The good news: calculating the right amount is not complicated. This guide shows you exactly how to do it.
The short answer: Most financial planners recommend coverage equal to 10–12 times your annual income, adjusted for your debts, dependents, and existing assets. But a personalised calculation using the DIME method is far more accurate.
The Two Main Approaches
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1. The Rule of Thumb: 10–12× Income
Quick, simple, and widely used. If you earn $70,000 per year, this method suggests $700,000 to $840,000 in coverage. It works as a rough starting point, but it ignores important factors like your mortgage balance, number of children, existing savings, and whether your spouse also earns income.
2. The DIME Method (Recommended)
DIME stands for Debt, Income, Mortgage, Education. It adds up everything your family would need, then subtracts what you already have. The result is your true coverage gap — the exact number you need to insure.
Our free calculator uses this method. Try it here — it takes under two minutes.
Factors That Increase Your Needed Coverage
- Young children — each child adds years of dependency and education costs
- Large mortgage — your family needs to stay in their home without your income
- High debt — car loans, credit cards, and student loans don't disappear when you die
- Stay-at-home spouse — if your partner doesn't work, your income is 100% of the household
- Business obligations — if you have partners or employees depending on you
- Private school / university plans — education costs are rising globally every year
Factors That Decrease Your Needed Coverage
- Significant savings and investments — these offset how much insurance you need
- Spouse's income — a working partner reduces your family's income gap
- Existing life insurance — employer-provided or other policies you already hold
- Government benefits — some countries provide survivor's benefits or pensions
- Paid-off mortgage — one less major liability to cover
💡 Pro tip: Review your life insurance every 2–3 years, and whenever you have a major life change — marriage, new baby, house purchase, or significant salary increase. Your needs change constantly.
A Real Example
| Factor | Amount |
|---|
| Income replacement (10 years × $60,000 expenses) | +$600,000 |
| Mortgage balance | +$280,000 |
| Other debts | +$20,000 |
| Education (2 children × $60,000) | +$120,000 |
| Funeral expenses | +$15,000 |
| Savings (subtract) | –$40,000 |
| Spouse income PV (subtract) | –$280,000 |
| Recommended Coverage | $715,000 |
How Much Does It Cost?
A 35-year-old non-smoker in good health can typically get a 20-year term policy for $700,000 coverage for approximately $40–$60 per month. That is less than most people spend on streaming subscriptions — for something that protects your entire family's financial future.
Premiums increase significantly with age and health issues, which is why the best time to buy is when you are young and healthy.
Next Steps
Use our free life insurance calculator to get your personalized number using the DIME method. It takes less than two minutes and supports 12 currencies for global users. Once you have your number, compare quotes from multiple insurers — prices vary significantly between providers.
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