The Question Behind the Question
Life insurance exists to answer one question: if your income disappeared tomorrow, could the people who depend on you keep their lives intact? The house, the childcare, the college plans, the groceries — someone has to pay for them.
If nobody depends on your income — no kids, no partner relying on your paycheck, no co-signed debts — you may not need life insurance at all. For everyone else, the question isn't whether but how much.
Why "10x Your Salary" Falls Short
The most common rule of thumb says to buy coverage worth 10–12 times your annual income. It's not a terrible starting point, but it ignores the things that actually determine your family's needs:
- A family with a paid-off house needs far less than one with 25 years left on the mortgage
- Two young kids imply nearly two decades of income replacement; teenagers imply a few years
- A household with $300,000 already saved needs less coverage than one starting from zero
- A stay-at-home parent earns no salary but would cost real money to replace (childcare alone can run $15,000–$25,000 per child per year)
Two families with identical incomes can need wildly different coverage. That's what the DIME method fixes.
The DIME Method
DIME walks through the four big obligations your insurance would need to cover:
D — Debt. All non-mortgage debts: car loans, credit cards, student loans that wouldn't be discharged, personal loans. Your family shouldn't inherit payments without the income that serviced them.
I — Income replacement. Your annual income × the number of years your family would need it. A common choice: until your youngest child reaches independence. If your youngest is 4 and you plan support through age 22, that's 18 years.
M — Mortgage. The full remaining balance. A paid-off home is the single biggest expense your family stops worrying about.
E — Education. Future college or trade school costs per child. Public in-state averages run around $25,000–$30,000 per year today (and rises faster than inflation); private schools far more.
Then subtract what you already have:
Coverage needed = D + I + M + E − savings − existing coverage
A Worked Example
A 35-year-old earning $80,000 with two kids (ages 4 and 7), a $250,000 mortgage balance, $20,000 in other debt, $150,000 in savings, and 1× salary in employer coverage:
| Component | Amount |
|---|---|
| Debt | $20,000 |
| Income (15 years × $80,000) | $1,200,000 |
| Mortgage | $250,000 |
| Education (2 × $100,000) | $200,000 |
| Subtotal | $1,670,000 |
| Minus savings | −$150,000 |
| Minus employer coverage | −$80,000 |
| Coverage needed | ≈ $1,440,000 |
Round to a standard tier: $1.5 million of term coverage. Notice how far this is from the "10x salary" answer of $800,000 — the mortgage and young kids nearly double it.
Term vs. Whole Life: Keep It Simple
For income protection, level term insurance is almost always the answer:
- A 20- or 30-year term matches the years your family actually depends on you
- Premiums are a fraction of permanent insurance — healthy applicants in their 30s typically pay well under $100/month for $1M+ of coverage
- When the need expires (kids grown, mortgage paid, savings built), you let the policy lapse
Whole life and universal life bundle insurance with an investment component at 5–10× the premium. They have legitimate uses in estate planning and business succession, but for a family protecting against lost income, the price difference is better spent on the coverage gap itself — or invested.
Don't Rely on Employer Coverage Alone
Group life insurance through work is a nice perk with two problems: it's usually only 1–2× salary (far below what DIME says most families need), and it isn't portable — leave the job and the coverage typically ends, possibly when you're older and harder to insure. Treat it as a bonus on top of an individually owned policy, not the foundation.
Insure Both Partners
A non-earning or lower-earning partner who handles childcare has real economic value. If they died, the surviving earner would face childcare, transportation, and household management costs — often $30,000+ per year. Coverage on both partners is standard advice for families with young children.
Key Takeaway
Add up your Debt, Income replacement, Mortgage, and Education costs, subtract savings and existing coverage, and buy that much level term insurance for the years your family needs it. It's a 15-minute calculation that replaces guesswork with your actual numbers — and term coverage costs less than most people assume.