Life Insurance Calculator

Calculate how much life insurance coverage you need to protect your family's financial future.

Understanding Life Insurance

What is Life Insurance?

Simple Definition: A contract that pays a lump sum to your beneficiaries when you die, replacing your income and covering expenses.

The Reality: Most American families would face financial hardship within 6 months if the primary earner died without life insurance.

Key Fact: 50% of American households are underinsured or have no life insurance. The average policy is $250,000 — far below the $1M+ most families need.

The DIME Method

Financial planners use DIME to calculate coverage needs:

D = Debt

All outstanding debts: mortgage, car loans, credit cards, student loans, plus funeral expenses ($10-15K)

I = Income

Annual income × years to replace (typically 10 years, or until youngest child is 18)

M = Mortgage

Already included in Debt, but emphasizes importance of covering housing

E = Education

College costs for all children ($100-200K per child for 4-year degree)

Example: $75K income, $250K mortgage, $25K other debts, 2 kids

D: $290K (debts + funeral) + I: $750K (10 years income) + E: $200K (2 kids college) = $1.24M needed

Term vs Permanent Life Insurance

Term Life Insurance (Recommended for Most)

Coverage for set period (10, 20, 30 years)
10-15x cheaper than permanent insurance
Best for: Income replacement, paying off debts, funding education
Example: $1M coverage for 35-year-old = $40-60/month

Permanent Life Insurance (Whole/Universal)

Lifetime coverage with investment component
10-15x more expensive than term
Best for: Estate planning, high-net-worth individuals
Example: $1M coverage for 35-year-old = $500-800/month

Financial advisor consensus: Buy term and invest the difference in low-cost index funds

Who Needs Life Insurance?

✓ Primary breadwinner: Essential if others depend on your income

✓ Stay-at-home parent: Childcare, household management have economic value ($50K+/year)

✓ Parents with young children: Cover childcare, education through age 18+

✓ Business owners: Protect business continuity, buy-sell agreements

✓ Anyone with debts: Don't leave mortgage/loans to surviving family

✗ Single, no dependents, no debts: Probably don't need it (yet)

✗ Financially independent: If net worth > family needs, self-insure

Critical Mistakes to Avoid

✗ Relying only on employer coverage: Typically 1-2x salary, far below actual needs. Disappears if you leave job

✗ Buying permanent when term works: Wastes money that could go to retirement savings

✗ Underestimating needs: "Rule of thumb" of 10x income often falls short

✗ Not insuring stay-at-home parent: Childcare/household replacement costs are real

✗ Waiting to buy: Premiums increase 4.5-9% per year of age. Buy young and healthy

Your Life Insurance Action Plan

Use this calculator to determine your coverage needs
Get quotes from 3-5 insurers (use PolicyGenius, Policygenius, SelectQuote)
Buy term life insurance for 20-30 years
Get coverage equal to DIME calculation (typically $1-2M for families)
Consider ladder strategy: Multiple policies of different lengths/amounts
Review coverage every 3-5 years or after major life changes
Don't cancel old policy until new one is approved and active
Invest premium savings (term vs permanent) in retirement accounts

Frequently Asked Questions

Most families need 10-12 times their annual income, but the exact amount depends on your specific situation:

DIME Method Calculation:
• D - Debt: Mortgage, car loans, credit cards, student loans, funeral costs ($10K-15K)
• I - Income: Replace 5-10 years of income (or until kids are independent)
• M - Mortgage: Already counted in Debt, but emphasize importance
• E - Education: College costs for kids ($100K-200K per child)

Quick estimation:
$75K income, 2 kids, $250K mortgage:
→ D: $290K (mortgage + debts + funeral)
→ I: $750K (10 years income)
→ E: $200K (2 kids college)
→ Total: $1.24M coverage needed

Stay-at-home parent: Don't skip! Childcare replacement value is $30K-70K/year. A stay-at-home parent with 2 young kids should have $300K-500K coverage.

Adjustment factors:
• More coverage if: Single income, young kids, high debt, special needs child
• Less coverage if: High savings, older kids, paid-off home, dual income