How Much Life Insurance Do I Need? Calculator and DIME Method

October 19, 2026 · Personal money

How much life insurance you need is the money your family would have to find if your income stopped, less what they would already have. The quick version is the DIME method: add your debts, years of income, the mortgage and education costs. The fuller version turns the income into a lump sum that would actually pay it out, adds the other costs, and subtracts savings and coverage you already hold. In the illustrative example below, DIME comes to $1,075,000 and the needs-minus-what-you-have method to $1,022,059. The two land close, but for reasons that can come apart, and the second shows you which inputs move the answer.

This post states no premium and no “times your income” rule of thumb. Every figure comes from the example family’s own numbers, which you would replace with yours.

The DIME method

DIME stands for Debt, Income, Mortgage, Education:

DIME = debts (not the mortgage)
     + yearly income x years to replace it
     + mortgage balance
     + education cost per child x children

Illustrative example: $25,000 of debts, $70,000 of income replaced for 10 years, a $250,000 mortgage and $50,000 of education for each of 2 children.

That is 15.4 times the yearly income. DIME is quick and easy to explain, and it has two blind spots. It counts income at face value - 10 years of paychecks as if all of it had to be in the bank on day one - and it ignores what you already have.

Needs minus what you have

The fuller method fixes both.

1. Turn the income into a lump sum. The family would not need the whole salary: the insured’s own spending stops. Say they need 75% of it, $52,500 a year, for 18 years, until the youngest child is independent. That is $945,000 in total. But a lump sum paid out over 18 years keeps earning while it waits. If it earns 3% a year above inflation, a fund of $722,059 pays $52,500 at the end of each year and is empty after the last payment. That is $222,941 less than the plain total.

lump sum = yearly need x (1 - (1 + r)^-years) / r

In a spreadsheet: =PV(rate, years, -yearly_need).

2. Add the other needs, subtract what you have.

Rounded up to the nearest $50,000, the example family would look at $1,050,000 of new coverage. If the employer coverage ended with the job, the gap would be $1,092,059: group coverage through work may not follow you, so check your plan.

For the savings line, count only what you would want spent this way. A net worth calculator lists what you own; not all of it belongs here.

The insight: the methods agree by accident

In this example DIME is $52,941 higher than the gap. That difference is three separate ones netting out:

• DIME’s income line, $700,000, is $22,059 lower than the present-value income line of $722,059. Fewer years at full pay happened to come out near more years at part pay, discounted.
• DIME leaves out final expenses and an emergency fund, $35,000 together.
• DIME subtracts nothing, where the fuller method takes off $110,000 of savings and existing coverage.

Change any one of those and the two methods split. The input that moves the fuller answer most quietly is the discount rate, which is your assumption, not a fact:

At 0% - no earnings on the payout at all - the gap is $1,245,000. At 5% it is $913,703. A higher rate assumes more from the money and so asks for less coverage. Choose it as a real return above inflation you would be comfortable relying on, because the family would be relying on it.

How long the term should be

The need does not last forever. In the example the parent is 35, the youngest child is 2 and counted as independent at 22, which is 20 years away, and the mortgage has 27 years left. The need runs until the later of the two: 27 years, to age 62. Of terms quoted at 10, 15, 20, 25 and 30 years, the shortest that reaches it is 30 years. Which terms an insurer offers is the insurer’s.

A parent with no paycheck still has a need

DIME has nothing to say about a stay-at-home parent, because the income line is zero. The work still has a replacement cost. Illustrative prices, not local quotes: childcare at $300 a week for 4 years is $15,600 a year; 20 hours a week of household work and 5 of driving and errands at $20 an hour is $26,000 a year for 16 years. That is $478,400 in total, or $384,575 as a lump sum earning 3%. The daycare vs nanny cost post works out childcare costs from your own quotes.

How these were calculated

DIME is the plain sum of the four lines. The income lump sum assumes the family draws the same amount at the end of each year and the fund earns the discount rate every year; it is checked by running the fund year by year until it is empty. The coverage gap is total needs less savings and existing coverage, never below zero. The term length is the later of the years until the youngest child is independent and the years left on the mortgage. Taxes on earnings and on any payout are not modeled.

Every figure on this page was computed twice - once by the code behind the calculator pack below, once by a separate year-by-year implementation - and the two agree to the cent. Every income, debt, cost, age and rate is illustrative, not a recommendation and not anyone’s quote. This is an estimate, not insurance, financial, legal or tax advice, and it does not recommend a policy, an amount or an insurer.

To run this on your own family’s numbers - DIME, the income lump sum, the gap after what you have, the term length, a stay-at-home parent’s replacement cost, and term against permanent quotes you have been given - the pack below does it in linked spreadsheets with every formula visible.