Why Most People Get This Wrong
When people buy life insurance without professional guidance, they tend to do one of two things: pick a round number that sounds big enough ("I'll get $500,000") or simply buy what they can afford ("I'll get $250K because that's what fits the budget"). Neither approach is wrong exactly, but neither is actually tied to what your family would need.
The goal of life insurance is to replace your financial contribution to your household for as long as your family needs it. That's a specific number — one that depends on your income, your debts, your family's expenses, and how many years of support your dependents would need. There are several methods for arriving at it.
The 10x Income Rule: Simple but Imperfect
The most common rule of thumb is to multiply your annual income by 10. If you earn $80,000 per year, this rule suggests you need $800,000 in coverage.
It's easy to remember and it gets in the right ballpark for many people. But it's also crude. It doesn't account for your existing savings and investments, which could reduce how much insurance you need. It doesn't account for your mortgage balance, number of children, or whether your spouse works. And it doesn't factor in how many years your dependents actually need support.
Use the 10x rule as a quick sanity check, not as your final answer.
The DIME Method: A More Complete Picture
DIME stands for Debt, Income (multiplied by years until children are independent), Mortgage, and Education. Add these four numbers together and you have a more complete picture of what your family would actually need.
Debt: Total all non-mortgage debts that would remain — car loans, credit cards, personal loans. These don't disappear when you do.
Income: Multiply your annual income by the number of years until your youngest child is financially independent (typically 18-22). This represents the income your family loses if you're gone.
Mortgage: The outstanding balance on your home loan. Your family needs to keep the house.
Education: Estimated cost of college for your children. This is often the most overlooked number.
A family with $30,000 in debt, $70,000 annual income with two young children (15 years of income needed), a $350,000 mortgage balance, and $100,000 in anticipated education costs would calculate: $30K + $1.05M + $350K + $100K = $1.53 million in total need. That's a very different number than the 10x rule might suggest.
What Can Reduce the Number
You don't need to insure 100% of your family's needs if you already have assets that can cover part of them. Existing savings and investment accounts, a spouse's income, and any existing life insurance policies should all be subtracted from your total need calculation.
If you have $200,000 in savings and a spouse who earns $60,000 per year, those reduce the gap your life insurance policy needs to fill. The goal is to ensure that the gap between what your family has and what they need is covered — not to have life insurance replace everything regardless of existing assets.
Why Most Americans Are Significantly Underinsured
LIMRA, the industry's research association, has found consistently that the average American household has a life insurance coverage gap — meaning they have less coverage than they actually need. The gap across all insured households runs into the hundreds of thousands of dollars on average.
Part of this is cost perception. People assume life insurance is more expensive than it is. Part of it is procrastination. Part of it is the "good enough" problem — buying some coverage and assuming the job is done.
The practical consequence is that many families who have lost a breadwinner discover, too late, that the coverage they had would run out in a few years — well before children are grown and the mortgage is paid.
Getting to the Right Number
The most reliable way to arrive at the right coverage amount is to work through the calculation with a licensed agent who will ask the right questions — not just about income, but about your mortgage, debts, number and ages of children, existing savings, and your spouse's financial situation.
Lifeley's agents do this on every call. The goal isn't to sell you the most expensive policy — it's to find the coverage level that genuinely protects your family without wasting your money on more than you need. If you've never done this calculation properly, it's worth 20 minutes to find out where you actually stand.