A third of Gen Z and Millennial adults can’t say how much life insurance they need or what type to buy. That finding comes from the 2025 Insurance Barometer Study by LIMRA and Life Happens. The same study puts the coverage gap at roughly 100 million American adults. The DIME method life insurance calculation closes that first gap, the not-knowing part. It takes about ten minutes with a pen and your last few statements. We walk families through this math every week, and it works because it replaces guessing with adding.
DIME stands for Debt, Income, Mortgage, and Education. Add up those four numbers and you have a starting coverage amount. The result rests on your actual obligations, not a rule of thumb. In this guide we run the full calculation, show a worked example, and cover what DIME leaves out. Then we compare it against the other two common methods so you can sanity-check your number.
How the DIME Method Life Insurance Calculation Works
Each letter is a category you total up. Grab your loan statements, your mortgage statement, and your last pay stub before you start.
D is for Debt. Add every debt except your mortgage: car loans, credit cards, student loans, personal loans, and money owed to family. Then add final expenses on top. Guardian suggests planning around $7,000 for funeral and end-of-life costs. We treat that figure as a floor rather than a ceiling.
I is for Income. Multiply your annual income by the number of years your family would need it replaced. A common anchor, used by Guardian among others, is the number of years until your youngest child finishes high school. If you earn $85,000 and your youngest is six, that line is $85,000 times twelve, or just over $1 million. Some families extend the horizon through college years instead.
M is for Mortgage. Use the payoff amount from your latest statement, and include any second mortgage or HELOC you didn’t already count under debt. Paying off the house outright is what lets a surviving family stay put without a monthly payment.
E is for Education. Estimate future education costs per child. Guardian and Life Happens both point to a planning range of roughly $100,000 to $150,000 per child for a four-year degree. Two kids at the midpoint adds $250,000.
A Worked DIME Example
Here’s the calculation for a hypothetical 38-year-old earning $85,000 with two kids, ages six and nine, and a typical suburban mortgage.
| DIME Category | What Goes In | Amount |
|---|---|---|
| Debt | Car loan $14,000 + cards $6,000 + final expenses $7,500 | $27,500 |
| Income | $85,000 × 12 years (until youngest finishes high school) | $1,020,000 |
| Mortgage | Payoff balance on the house | $340,000 |
| Education | Two children × $125,000 | $250,000 |
| DIME total | Starting coverage estimate | $1,637,500 |
That number surprises most people. For context, the American Council of Life Insurers reports the average new individual policy purchased in 2024 was $209,000. The gap between what families buy and what the math says they need is the real story of underinsurance in this country.
How Many Years of Income Should You Count?
The income line swings the total more than any other choice, so pick the horizon deliberately. Three anchors cover most families. Counting until the youngest finishes high school is the common minimum. Extending through college adds four more years per child of support. And counting until your spouse’s planned retirement is the most protective and the most expensive.
Whichever horizon you choose, count your real income, not just the number on the pay stub. The Insurance Information Institute calls the rest hidden income. Your employer’s share of the health insurance premium and the 401(k) match both vanish with your paycheck. Replacing just those two items can cost a surviving family well over a thousand dollars a month. If your family would need them replaced, they belong in the income line.
One simplification is fair in the other direction. The payout arrives as a lump sum your family can invest, so a dollar today covers a bit more than a dollar of future salary. Most families call that wash their inflation cushion and move on. Precision matters less than actually finishing the calculation.
What the DIME Method Leaves Out
DIME adds up obligations and stops. It never subtracts what your family already has, so a raw DIME total usually overshoots. Before you shop, reduce the total by these items:
Liquid savings and investments. Count savings, brokerage accounts, and college funds. Skip home equity and retirement accounts that carry early-withdrawal penalties, since your family can’t tap those quickly or cheaply.
Existing life insurance. Count individual policies at face value. Count group coverage through work cautiously, because it usually ends when the job does.
A surviving spouse’s income. If your household runs on two incomes, the income line only needs to cover the share your earnings represent.
Social Security survivor benefits. This is the offset almost nobody prices in. A surviving spouse caring for a child under 16 can generally receive 75 percent of the worker’s basic benefit. Each qualifying child under 18 can also receive 75 percent, subject to a family maximum, per the Social Security Administration. There’s a catch worth knowing. The spouse’s own caregiver benefit typically stops when the youngest child turns 16. No spousal survivor benefit resumes until age 60. Those gap years are exactly what private coverage should bridge.
Here’s the subtraction side at a glance.
| Offset | Subtract It? | Caution |
|---|---|---|
| Savings and brokerage accounts | Yes | Liquid balances only |
| Retirement accounts | Mostly no | Early withdrawals carry penalties and taxes |
| Home equity | No | Your family would have to sell the house to reach it |
| Individual life insurance | Yes | Confirm beneficiaries are current |
| Group life through work | Partially | Usually ends when the job does |
| Social Security survivor benefits | Partially | Spousal checks stop at the youngest child’s 16th birthday |
DIME vs. 10x Income vs. Human Life Value
Three methods dominate the how-much conversation. Each answers a slightly different question.
| Method | How It Works | Strength | Weakness |
|---|---|---|---|
| 10x income | Multiply gross income by 10 to 15; Life Happens suggests adding $100,000 per child for college | Fast, easy to remember | Ignores your actual debts and gives a stay-at-home parent a coverage amount of zero |
| DIME | Add Debt + Income years + Mortgage + Education | Built on your real obligations | Ignores assets and benefits you already have, so it overshoots |
| Human Life Value | Multiply income by an age factor; Guardian’s guideline runs 30x at ages 18 to 40, 20x at 41 to 50, 15x at 51 to 60, and 10x at 61 to 65 | Captures full career earning power | Produces the largest numbers, and carriers use it as a ceiling more than a target |
Here’s our take after years of quoting these side by side. Run DIME for your floor and use 10x as a gut check. Treat Human Life Value as the ceiling a carrier would likely issue. When DIME lands well above 10x your income, it’s usually the mortgage or a big education line doing it, and that’s a legitimate reason to carry more.
What About Stay-at-Home Parents?
The income line reads zero for a parent without a paycheck, and that’s a trap. A surviving working spouse would suddenly need to pay for childcare, transportation, and household management that the stay-at-home parent provided. Price full-time childcare in your area, multiply by the years until the kids are independent, and add final expenses. Coverage in the $250,000 to $500,000 range is a common outcome of that math, and it’s some of the least expensive coverage a healthy adult can buy.
Matching the Term to the Number
Your DIME total also tells you how long coverage needs to last. If your youngest is six, a 20-year term carries you past high school and college. A useful refinement is laddering. Instead of one $1.5 million 30-year policy, you might hold a $1 million 20-year term for the child-raising years. Stack it with a $500,000 30-year term that runs until the mortgage disappears. You pay for big coverage only during the years the big obligations exist.
Term fits obligations with an end date, which is most of what DIME measures. Permanent coverage, such as universal life, fits obligations that never expire, like a lifelong dependent or final expenses you want covered at any age. If you’re weighing the two, our guide comparing which type of life insurance is right for you walks through that decision in detail.
“I Already Have Coverage Through Work”
Group life is a genuine benefit and rarely a complete answer. Employer policies commonly pay one to two times salary. The DIME math for a family with a mortgage typically lands at eight to fifteen times. Group coverage also usually terminates when you change jobs, right when a new health issue could make individual coverage harder to get. Treat work coverage as a supplement you subtract from your DIME total, not as the plan.
Common DIME Mistakes We See
Double-counting the house. The mortgage gets its own letter. If the payoff also sneaks into your debt line, the total inflates by hundreds of thousands.
Counting debts that die with you. Federal student loans are discharged when the borrower dies, per Federal Student Aid rules. Leave them out of the debt line. Private student loans are different: some survive against a cosigner, so those stay in.
Skipping the second calculation. Households run DIME for the bigger earner and stop. A second income and a stay-at-home parent’s unpaid work both need their own policy and their own math.
Sizing the term shorter than the obligations. A 10-year policy against a 25-year mortgage leaves the biggest line uncovered for 15 years. Match each layer’s length to the obligation it protects.
Letting the number go stale. A DIME total from before your second kid, your bigger house, or your raise protects a family that no longer exists. Recalculate at every milestone.
Frequently Asked Questions
Is the DIME method accurate?
It’s accurate about obligations and silent about resources. Nonprofit industry group Life Happens describes the needs-minus-resources approach as the fuller version of the estimate. Total your family’s expected expenses, subtract what they’d already have, and insure the difference. DIME handles the first half well. You handle the subtraction.
Does DIME include funeral and final expenses?
Yes, they belong in the Debt line. Plan on at least $7,000 to $10,000 so your family never fronts those costs out of pocket.
Is a life insurance payout taxable?
Per the IRS, death benefit proceeds paid to a beneficiary generally aren’t includable in gross income. Interest earned on proceeds left with the insurer is taxable, though. That means your DIME number doesn’t need to be grossed up for income taxes in most situations.
How often should we recalculate?
Rerun the math after every big life event. That means a birth, a home purchase, a refinance, a raise, a divorce, or a new business. Absent those, a check every two to three years keeps the number honest as debts shrink and kids age out of the income line.
What if the full DIME number isn’t in the budget?
Buy what you can afford now rather than waiting. A $500,000 policy in force protects your family far better than a $1.6 million policy you never applied for. You can add coverage later as income grows.
Run Your Number With Us
The DIME method gets you a defensible starting number in minutes, and the adjustments are where an independent agency earns its keep. We quote multiple carriers, help you subtract what you already have, and structure term lengths around when each obligation actually ends. Western Pacific Insurance writes life insurance nationally and serves families across Nevada, Utah, California, and Arizona. We also keep local guides for Henderson, Lehi, San Diego, and Phoenix. Ready for a real quote on your real number? Request a quote and we’ll do the math with you.
