The three sizing methods
10× income: a $80k earner buys $800k of term. Quick, simple, often roughly right. Tends to under-insure households with very young children and over-insure households nearing retirement.
DIME: Debt + Income (years dependents need replacement income) + Mortgage + Education. Adds line items for each obligation and produces a more household-specific number.
Human-life-value: present value of all future earnings the insured would have provided. Most precise, requires assumptions about wage growth, discount rate, and working years remaining.
DIME worked example
Household: 35-year-old earning $80k, two kids aged 4 and 7, $300k mortgage, $20k credit-card debt, plans to fund college.
Debt: $20k. Income: $80k × 18 years until youngest is independent = $1.44M. Mortgage: $300k. Education: $30k × 2 = $60k (college support). Total: $1.82M of coverage needed.
Round to $2M of 20-year term, typical premium ~$60–$100/month for a healthy 35-year-old.
Adjustments that reduce the need
- Surviving spouse's income, subtract their earnings from the income line.
- Existing assets that would pass to dependents (retirement accounts, investments).
- Social Security survivor benefits for minor children (~$1,500–$2,500/month per child, varies).
- Employer-provided life insurance (typically 1× salary), reduce gap accordingly.
Adjustments that increase the need
- Stay-at-home parent value: childcare, transportation, household management run $40k–$70k/year if hired out.
- Special-needs dependent who'll need lifetime support.
- Planned long-term financial gifts to extended family or charity.
- Plan for replacement of unpaid services (eldercare, household management).
Coverage for both spouses
Both partners need coverage even when one stays home, the surviving spouse will need to either replace lost earnings or pay for the services the deceased provided.
Common setup: $1M–$2M on the higher earner, $500k–$1M on the lower earner or stay-at-home parent. Both should be 20-year term unless retirement is closer.
How long the coverage should last
- Until youngest child is independent (typically 18–22).
- Until mortgage is paid (often 15–30 years from purchase).
- Until retirement assets reach a self-insured threshold (~25× annual expenses).
- Whichever is longest, that's your term length.
Common sizing mistakes
- Relying only on employer coverage (1× salary is far below household need; coverage ends when the job ends).
- Underestimating childcare cost replacement for stay-at-home parents.
- Forgetting to update coverage after major life events (new child, new mortgage, divorce).
- Buying whole life for the 'permanent' aspect when the actual need is temporary (until kids are independent).
