Life insurance coverage needs vary widely based on your dependents, debts, income, and existing assets. The goal is to replace the financial impact of your death so your family can maintain their standard of living and meet their goals.
The DIME method. DIME stands for Debts, Income, Mortgage, and Education — four categories that quantify your family's needs. This calculator extends DIME with a present-value income calculation to account for the fact that a death benefit earns investment returns while being drawn down.
Why present value? If your family invests the death benefit at 5% and draws $8,333/month (equivalent to $100k/year), a smaller lump sum is needed than if the money just sat in a savings account. The present value formula accounts for this earning power.
Rule-of-thumb vs. comprehensive. The 10–12× income rule is easy but imprecise — it ignores existing assets, debts, and the specific time horizon. The income replacement method shown here is more tailored to your situation.
Term vs. whole life. Term life is the most cost-efficient coverage for income replacement — it covers you for a defined period at a fixed premium. Whole life adds a savings component at significantly higher cost. Most financial planners recommend term life for pure protection.