Most financial planners start with a rule of thumb — 10 times your annual income — but that number is a rough guide, not a final answer. The right coverage amount depends on what your family would need to cover if you died today: years of lost income, your mortgage balance, outstanding debts, and future education costs, minus whatever savings and existing coverage would still be there. Running that calculation typically lands somewhere between 7 and 15 times your income, though the right number for any individual can fall outside that range.
The DIME formula
The DIME formula breaks your coverage need into four categories:
| Component | What to calculate |
|---|---|
| Debt | All debts except your mortgage, plus estimated funeral costs (~$8,000–$12,000) |
| Income | Annual income × number of years your family would need support |
| Mortgage | Current mortgage payoff balance |
| Education | Estimated college costs per child |
Add all four, then subtract liquid assets — savings, non-retirement investments, and any existing life insurance. The result is your coverage target.
Example: A 45-year-old earning $75,000 a year with a $100,000 mortgage balance, $25,000 in other debt, two kids, $150,000 in existing life insurance, and $40,000 in savings might calculate:
- Income (15 years × $75,000): $1,125,000
- Mortgage: $100,000
- Other debts + funeral: $35,000
- College (2 kids × $60,000): $120,000
- Subtotal: $1,380,000
- Minus existing coverage ($150,000) + savings ($40,000): −$190,000
- Coverage target: ~$1,200,000
The 10x shortcut
Multiplying your annual income by 10 is fast and serviceable if you don’t want to run the full calculation. Adding $100,000 per child on top makes it more complete. A household earning $80,000 a year with two children would aim for roughly $1,000,000 in coverage.
The limitation: this shortcut doesn’t account for your mortgage balance, actual debt load, or whether your spouse earns income. It also ignores assets you already have. Use it as a sanity check, not a final answer.
How long should the term be?
The term should last as long as your biggest financial obligations. Common landmarks:
- 20-year term — covers children until adulthood and gives time to pay down a 30-year mortgage by half
- 30-year term — covers a full mortgage payoff, children through college, and most of the accumulation phase of a career
- 10-year term — appropriate for specific short-term obligations (a business loan, the last decade before retirement)
Matching the term to your obligations avoids paying for coverage you no longer need — once your kids are independent and your mortgage is gone, life insurance becomes less critical.
Stay-at-home parents need coverage too
The DIME formula is built around income replacement, which undersells the need for a non-working spouse. Childcare, household management, and school logistics have real replacement costs. A stay-at-home parent with two young children represents $30,000–$50,000 a year in services that would need to be replaced. Many planners recommend $250,000–$500,000 for a non-earning spouse depending on the number and ages of children.
Single people with no dependents
If no one relies on your income, you need far less coverage — typically only enough to cover any co-signed debts (student loans where a parent co-signed, for example) and final expenses. A small $25,000–$50,000 policy may be enough. If you have no dependents and no co-signed debt, life insurance may not be necessary at all.
After you calculate your number
Lock in your coverage amount when you’re young and healthy — that’s when premiums are lowest. According to NerdWallet’s 2026 rate data, a healthy 30-year-old woman pays roughly $184/year and a 30-year-old man pays roughly $215/year for $500,000 in 20-year term coverage. By age 50, those same policies cost $640 and $815 respectively — three to four times as much. Actual rates vary by health class, tobacco status, state, and insurer.