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Life Insurance Basics
How much coverage do I need?
How much coverage do I ...

How much coverage do I need?

It’s different for everyone. In general, you can find your ideal coverage amount by calculating your long-term financial obligations and then subtracting your assets. The remainder is the gap that life insurance needs to fill. It can be difficult to know what to include in your calculations, so we created a term life insurance calculator to help you determine your coverage needs.

There also are a few rules of thumb that can help guide you. One easy way is to multiply your annual income by 10. You can also use the DIME formula as a starting point in calculating your life insurance needs. DIME is an acronym for Debt, Income, Mortgage, and Education.

  • Debt: Total monetary value of all debt (student loans, credit cards, car loans, etc.) You’ll likely want to include anticipated funeral expenses here.
  • Income: Take your annual income and multiply it by the number of years your family will need the support (e.g., until your youngest child reaches a predetermined age, such as 18, 21, or 25). For example, if you make $50,000 per year after taxes and your youngest child is 10, and you want income protection until he or she is 21, then the income formula would be $50,000 x 11 years = $550,000. If you’re a stay-at-home parent, include the cost to replace the services that you provide, such as child care.
  • Mortgage: Having enough life insurance can help keep your family in your home. With this step, simply add up the remaining balance on your mortgage. If you are renting, consider adding 10 years of rental income to your plan as a substitute.
  • Education: Estimate the cost of sending your children to college or private school. It is common to estimate $100,000 per child for a four-year university education at a state school. That includes tuition fees, room and board, and books.
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