Life insurance coverage is often undersized — either because of the cost, or because people use overly simplistic rules. The correct amount is enough for your dependents to replace your financial contribution to the household for as long as they need it. Here's how to calculate a more accurate figure.

The DIME Method

D — Debt: Total of all debts you'd want paid off (mortgage, car loans, student loans, credit cards)

I — Income: Annual income × number of years your family needs support (typically until youngest child is 18–22, or until your spouse reaches retirement age)

M — Mortgage: Already counted in Debt if you included it above — don't double-count

E — Education: Estimated cost of college for each child (typically $80,000–$250,000 per child in today's dollars)

Add D + I + E and subtract any existing assets (savings, existing life insurance). The result is your coverage gap — the amount of additional insurance you need.

A Worked Example

Earner: $140,000/year income. Dependents: two children (youngest age 3 — 19 years until independent). Mortgage: $480,000. Other debts: $22,000. College for two children: $200,000 total.

  • Debt: $480,000 + $22,000 = $502,000
  • Income: $140,000 × 19 years = $2,660,000
  • Education: $200,000
  • Total: $3,362,000
  • Less existing savings ($80,000): Need approximately $3.3M in coverage

This looks large, but a $3M, 20-year term policy for a healthy 34-year-old costs approximately $100–$150/month. The alternative — your family losing $140,000/year in income — is far more expensive.

Don't Forget the Stay-at-Home Parent

If one partner doesn't earn income, their work still has economic value — childcare, household management, and more. The cost to replace these services (childcare, cleaning, cooking, logistics) runs $30,000–$80,000/year depending on the number and ages of children. Even if your spouse earns $0, they need life insurance coverage equivalent to the cost of replacing what they provide.

Why Employer Life Insurance Isn't Enough

Many employers provide 1–2x annual salary in group term life insurance. On a $140,000 salary, that's $140,000–$280,000 — a fraction of the $3M+ coverage a family with young children needs. Employer policies also terminate when you leave the job. Life insurance should follow you, not your employer.

Reevaluate Every 5 Years

Life insurance needs change dramatically as children grow, mortgages shrink, assets accumulate, and incomes increase. Recalculate every 5 years or after major life events (new child, home purchase, divorce, significant salary change). Many people find they can reduce coverage meaningfully in their 50s as mortgage balances decline and children become independent.