How Much Life Insurance Do I Need? (DIME + 1)

A common question that people ask is "How much life insurance do I actually need?" For most people with families and maybe even a business, the simple formula is the DIME method, which works as follows:

Debt - Calculate your debt, and ALL of it. Car loans, student loans, credit cards, etc. If you should die before paying off these debts, your family or estate could be on the hook for the money owed. 

Income - Many people fail to include the loss of their income into their coverage. If you are the main breadwinner, that lack of income could significantly impact your family's ability to pay bills or other items, like car repairs or sudden medical bills. And if you're not the main earner but do contribute to a large portion of the bills, your income should still be included. The rule of thumb is usually 3-5 years of income should be added to the death benefit. 

Mortgage - Yes, your mortgage does count as debt (see above), but some people will purchase "mortgage protection" coverage. In most cases this is a "decreasing term" policy, with a few health questions. In my opinion, it can be more expensive than just paying for "level term" policy with the death benefit staying the same throughout the life of the policy, but underwriting may be more involved.

Education - If you have children, you might want to make sure they can pay for any higher education expenses in the event that you're no longer in the picture. There are many college calculators on the web.  

There's one more cost that I think many people overlook, which is final expenses and the costs associated with death. Funeral costs can vary but assuming that the average is around $13,000 and that most people will die from illnesses that will require hospital and other medical bills, I suggest about $25,000 total. 

Another note on final expense insurance: If you have your "final expenses" already figured in, you can save a lot of money down the road without having the two-year wait that some policies will insist on. We'll cover final expense insurance in a later blog.

If you have questions on calculating your total coverage let us know.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. Please subscribe to this blog!