Insurance / THE DECISION DESK
Life Insurance Coverage Calculator
Work out how much term life coverage your household actually needs using the DIME method, with income replacement valued in today's dollars.
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$1,300,000
About 15.3x your annual income, rounded up to the nearest $25,000 since policies are sold in increments.
What makes up the need
What offsets it
How this is calculated
This uses the DIME method — Debt, Income, Mortgage, Education — with one change to how the income leg is valued.
The naive version multiplies income by the number of years you want to replace it. That overstates the need, because a lump sum invested by your survivors earns a return while it is drawn down. Instead, the income component here is the present value of that stream, discounted at the real rate:
real rate = (1 + return) / (1 + inflation) − 1
PV = income × (1 − (1 + real)−years) / real
Discounting at the real rather than nominal rate keeps the answer in today’s dollars, so the figure means what you think it means when you compare it against a policy quote.
Debt, mortgage, and education are added at face value — these are obligations settled at or near the time of a claim, so there is no meaningful discounting to apply. Existing coverage and liquid savings are then subtracted, and the result is rounded up to the nearest $25,000 because that is how policies are actually sold.
Not modeled: Social Security survivor benefits, which can be substantial for households with young children; a surviving partner’s own income or earning capacity; and any estate tax exposure. The first of those will tend to push the real number down, the last can push it up.
Common questions
›Is the '10 times your income' rule good enough?
It is a starting point, not an answer. The rule ignores everything specific to your household: how much of the mortgage is left, whether you have children and how far they are from finishing school, what a surviving partner earns, and how much you have already saved. Two people earning the same salary can have coverage needs that differ by several hundred thousand dollars. Use the multiple as a sanity check on the number this calculator produces, not as a substitute for it.
›Why is the income replacement figure lower than income times years?
Because a lump sum earns a return while it is being spent down. If your survivors invest the payout and withdraw from it over twenty years, they do not need twenty years of salary up front — they need the present value of that income stream. This calculator discounts at the real rate, meaning your expected return net of inflation, so the result stays in today's purchasing power.
›Should I count my employer's group life insurance?
Count it, but carefully. Group coverage is usually one or two times salary and it almost always ends when the job does. That makes it a poor foundation for a twenty-year need. If you are between jobs, or you change employers, the coverage disappears exactly when you have not yet replaced it. Many people size an individual policy to the full need and treat group coverage as a bonus on top.
›Should I include retirement accounts in liquid savings?
Generally no. Retirement accounts may carry penalties, restrictions, or tax consequences that make them unattractive for a survivor covering near-term living costs. Inherited accounts also come with distribution rules that vary by relationship and account type. Counting them as freely available savings tends to understate the coverage you need.
›Term or whole life?
This calculator sizes the need, not the product. That said, the need it models is temporary by construction — it shrinks as the mortgage amortizes, children finish school, and savings grow. Coverage sized to a shrinking need is what term insurance is built for, and it costs a small fraction of permanent insurance at the same face amount. Permanent policies solve different problems, mostly estate and tax planning, and are worth discussing with a fee-only advisor rather than a commissioned seller.