You may have heard that you should have five times your income. Or ten times your income. Maybe you've used an online calculator that gave you a number in less than a minute.
Those can be useful starting points.
But there is a better question to ask first:
What would financially change for the people I care about if I were no longer here?
Start With a Simple Framework: DIME
One commonly used way to begin estimating life insurance needs is the DIME method.
DIME stands for:
- D — Debt
- I — Income
- M — Mortgage
- E — Education
Let's look at each one.
D — Debt
Add up any debts that would not disappear if you died — credit cards, car loans, personal loans, medical debt, or anything else that would need to be paid.
I — Income
Consider how many years your family would need income replacement and multiply your annual income by that number.
This is one of the most significant factors in most estimates.
M — Mortgage
If you have a mortgage, consider whether your family could continue making payments or whether paying it off would be important to them.
E — Education
If you have children, consider whether funding their education is part of what you want your life insurance to accomplish.
What DIME Doesn't Cover
DIME is a starting point, not a complete picture.
It doesn't account for inflation, existing assets, existing coverage, or the non-financial contributions a person makes — childcare, caregiving, household management — that would cost money to replace.
It also doesn't account for your specific goals, your family's specific situation, or what you actually want life insurance to accomplish.
Questions Worth Asking
Rather than starting with a number, start with questions:
- Who depends on me financially?
- What expenses would continue if I were gone?
- What debts would remain?
- What would my family need to maintain their standard of living?
- How long would they need support?
- What do I already have in place?
The answers to those questions are what should drive the number — not the other way around.
The Bigger Picture
You don't have to become an insurance expert. But you should understand enough to ask better questions, recognize what matters and make more informed decisions.
How Does This Fit Into Your Life?
GEMACE LifeMap™ begins with your family, responsibilities, goals, concerns and what you're already counting on before discussing possible solutions.
You don't have to become an insurance expert. But you should understand enough to ask better questions, recognize what matters and make more informed decisions.
Educational Information
This material is provided for general educational purposes only and is not intended as individualized insurance, financial, investment, tax or legal advice. Individual circumstances vary. Insurance products, features, availability, eligibility, costs and policy provisions vary by insurer, product and applicant. Review actual policy documents and consult appropriately licensed or qualified professionals regarding your individual circumstances.