The Rule of Thumb: 7–10× Your Income
The most common recommendation is to carry life insurance equal to 7–10 times your annual income, plus any outstanding debts, plus college costs for your children.
For example: if you earn $75,000/year, carry a $200,000 mortgage, and have two young children, you might aim for $800,000–$1,000,000 in total coverage.
The DIME Formula
For a more precise calculation, use DIME:
Debt
Total all outstanding debts: credit cards, car loans, student loans, and estimated funeral expenses (typically $10,000–$15,000).
Income
Multiply your annual income by the number of years until your youngest child becomes financially self-sufficient.
Mortgage
Add the remaining balance on your mortgage so your family can stay in their home.
Education
Estimate the total college cost for each dependent child (currently ~$30,000–$100,000 per child).
Example Calculation
Minus any existing life insurance or liquid savings you have. Round to the nearest $250,000 for clean policy amounts.
How Long Should Your Term Be?
Your term length should align with your financial obligations. Common guidelines:
- 10-year term: Covers shorter-term debts; good for those close to retirement
- 15-year term: Covers a mortgage with 15 years remaining
- 20-year term: Ideal for parents with children under age 10
- 30-year term: Longest protection; best for young parents with newborns
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