How Much Life Insurance Do I Actually Need? A Simple Formula

Published March 18, 2026 · 5 min read · All Articles

The life insurance industry loves to overcomplicate this. The actual calculation is straightforward. Here are two methods, from simple to thorough.

The Quick Method: 10-12x Income

Multiply your annual income by 10-12. Earning $80,000? You need $800,000-$960,000 in coverage. This is a rough estimate that works for most dual-income families with a mortgage and kids. It's the minimum — not the optimum.

The DIME Method (More Accurate)

D — Debt: Total all debts (mortgage balance, car loans, student loans, credit cards). Example: $320,000.
I — Income: Annual income × years until youngest child is 18 (or until spouse reaches retirement). Example: $80,000 × 15 years = $1,200,000.
M — Mortgage: Already included in Debt above, but if you want to ensure the house is paid off regardless, add the full balance. $0 (already counted).
E — Education: College costs for each child. Example: 2 kids × $120,000 each = $240,000.

Total: $320,000 + $1,200,000 + $240,000 = $1,760,000

Then subtract existing assets (savings, investments, existing policies, Social Security survivor benefits). If you have $300,000 saved, you need approximately $1.5 million in coverage.

Term vs Whole Life: The Clear Winner

Term life wins for 95% of people. A 30-year-old can get $1 million in 30-year term coverage for $40-60/month. The same coverage as whole life would cost $500-800/month. The difference ($440-740/month) invested in index funds will almost certainly grow more than the whole life policy's cash value. Buy term, invest the difference.