It’s different for everyone. In general, you can find your ideal coverage amount by calculating your long-term financial obligations and then subtracting your assets.

The remainder is the gap that life insurance needs to fill.

There also are a few rules of thumb that can help guide you. One easy way is to multiply your annual income by 10. You can also use the DIME formula as a starting point in calculating your life insurance needs.

DIME is an acronym for Debt, Income, Mortgage, and Education.

Debt: Total monetary value of all debt (student loans, credit cards, car loans, etc.) You’ll likely want to include anticipated funeral expenses here.

Income: Take your annual income and multiply it by the number of years your family will need the support (e.g., until your youngest child reaches a predetermined age, such as 18, 21, or 25).
For example, if you make $50,000 per year after taxes and your youngest child is 10, and you want income protection until he or she is 21, then the income formula would be $50,000 x 11 years = $550,000. If you’re a stay-at-home parent, include the cost to replace the services that you provide, such as child care.

Mortgage: Having enough life insurance can help keep your family in your home. With this step, simply add up the remaining balance on your mortgage. If you are renting, consider adding 10 years of rental income to your plan as a substitute.

Education: Estimate the cost of sending your children to college or private school. It is common to estimate $100,000 per child for a four-year university education at a state school. That includes tuition fees, room and board, and books.   

Personal finance experts recommend that you have savings and/or coverage that are at least ten times your annual salary, if not more. If you have already built up enough savings to provide that safety net on your own, then you may not need life insurance. If your savings falls a bit short, getting a term or guaranteed issue whole life insurance policy can help protect your family’s future.

Most of our customers are one or more of the following:

Parents: It costs tens of thousands to raise a child to adulthood, not including college tuition. A life insurance policy can help ensure financial security for your family.

Homeowners: A mortgage is likely the most significant debt you will ever take on. If you are a homeowner, consider a life insurance policy that lasts the same length as your mortgage term so your family is not stuck in a financially unsustainable situation.

Partners: You’d do anything for your partner, which means ensuring they are taken care of if you die unexpectedly. Be sure to take into account any shared debt, expenses, and future financial plans.

Students: Your debt doesn’t disappear when you die. If you had a private student loan, your parents or other cosigners might be on the hook for your debt if you pass away.

Business owners: It’s not just your family that depends on you when you own a business. Ensuring your business can still run even after you’re gone is a smart move.

Retirees: It’s natural to have concerns with covering your final expense if you’re at or approaching retirement age. A whole life insurance policy can help cover these expenses, giving you and your loved ones valuable peace of mind.

Caretakers: If someone depends on you, like an elderly parent or family member with a disability, what would happen to them if you weren’t around? You may want to consider coverage to make sure they’d be taken care of.    

The only time life insurance doesn’t pay out is when you’re not 100% open and honest during your application.

Otherwise, you shouldn’t worry.

Term Life
Provides coverage for a specific period of time and pays out a death benefit if the policyholder dies during that time.

Whole Life
Provides lifetime coverage and builds cash value over time, which can be borrowed against or used to pay premiums.

Universal Life
Similar to whole life insurance, but with more flexibility in premium payments and death benefit amounts.

Final Expense
Provides coverage for end-of-life expenses such as funeral and medical costs.

Group Life
Coverage provided to a group of people, such as employees of a company, as a benefit from the employer.

There are other variations but for the majority of people, Term Life is the best choice.