The question we hear most is: "How much life insurance is enough?" The honest answer is that it depends on what your family would need to stay financially stable without your income.
Start With the DIME Method
- D – Debt: credit cards, car loans, student loans and other non-mortgage debt.
- I – Income: your annual income times the number of years your family would need support.
- M – Mortgage: the remaining balance, so your family can keep the house.
- E – Education: college costs for your children.
Add final expenses, then subtract existing life insurance and savings earmarked for these goals. The result is a reasonable target.
A Quick Rule of Thumb
Some advisors suggest 10 to 15 times your annual income as a starting estimate. It is a handy shortcut, but it ignores your debts, your spouse's income and your specific goals, which is why a personal review beats a formula.
Do Not Forget the Stay-at-Home Parent
A parent who does not earn a paycheck still provides child care, transportation, household management and more. Replacing those services is a real cost, and coverage on both parents is often wise.
Life Changes, Coverage Should Too
- Marriage or a new baby
- Buying a home or investment property
- Starting or selling a business
- A raise, a divorce or a child leaving for college
Each of these is a reason to review your coverage. Layering several term policies of different lengths can match coverage to your needs and keep premiums efficient.