Life Insurance: The DIME Method

Life insurance is a topic few like to think about because it often leads to the consideration of some negative things. Life insurance is all about protecting the future of your family and loved ones when you are no longer there, however: While we all plan to live long and healthy lives, it does not always happen that way, which makes preparing for life’s unpredictability important.

The DIME method is the perfect way to do so. DIME, simply put, is a formula to calculate a recommended amount of life insurance coverage.

DIME is an acronym for Debt, Income, Mortgage, and Education.

D is for Debt.
DIME Image 1 (D)
Consider this: If you were to pass away, how much debt would you leave behind? This debt ultimately becomes the burden of your loved ones, unless you prepare properly. Your life insurance policy should cover any debt you have.

As an example, let’s say you have $15,000 in credit card debt and $10,000 in student loans. That means you are $25,000 in debt.

I is for Income.
DIME Image 2 (I)

 

 

A general rule of thumb in determining how much life insurance you need is to multiply the main household earner’s annual income by 10.

As part of our example, let’s say you make $65,000 per year. You might consider a $650,000 policy.

M is for Mortgage.
DIME Image 3 (M)

 

 

If you have a mortgage, your life insurance policy should pay off the remaining balance of your mortgage loan.

If you owe $200,000 on your home, you would add this with your debt and income.

E is for Education.
DIME Image 4 (E)

 

 

If you have kids, you may want to consider any future college expenses.
Per kid, you can assume a minimum of $100,000 for a four-year university education at a state school, including tuition fees, room and board, and books. Private universities or out-of-state schools can be significantly more expensive, though. While financial aid can help with these expenses, scholarships aren’t guaranteed and loans can carry high interest rates.

For the sake of our example, we’ll go with the $100,000 figure, for just one kid.

Example:
Debt: $25,000
Income: $650,000
Mortgage: $200,000
Education: $100,000
DIME = $975,000

The recommended life insurance coverage for this example is a $975,000 policy.

Want to calculate how much life insurance coverage you and your family need? Use our DIME Calculator.

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