The DIME Method: Calculate How Much Life Insurance You Need

6 min read

Insurance

If you've ever shopped for life insurance, you've probably heard an agent tell you to buy "10x your income" — or maybe a tool that suggested a number with no explanation of how it got there. The DIME method is the antidote to that black box. It's a simple, transparent formula: Debt, Income, Mortgage, Education. Four numbers you already know, added together, minus what you've already saved.

It's not perfect, and we'll cover its blind spots below. But as a starting point, DIME gives you a defensible number in about ten minutes — which is more than most agents will give you.

D — Debt (everything but the house)

The first bucket is all your non-mortgage debt: car loans, credit cards, student loans, personal loans, medical debt. If you died tomorrow, your family shouldn't have to service this on a single income.

Add up every non-mortgage balance you owe. A $20,000 car loan, $5,000 in credit card debt, and $10,000 in student loans puts your D at $35,000.

Why exclude the mortgage here? Because it gets its own letter.

I — Income (replacement for your dependents)

This is the biggest bucket. The question is: how many years of your income does your family need to replace? The standard recommendation is 10 years — enough to get kids through school and give a surviving spouse time to adapt without financial panic.

Multiply your annual gross income by the number of years. A $100,000 earner with young kids: $100,000 × 10 = $1,000,000.

The number of years is the variable that matters most. If your youngest is 16, you might only need 2–3 years. If both parents work and can survive on one income, you need less. If one parent stays home full-time, you need more — replacing that unpaid labor (childcare, cooking, transportation) is expensive, and DIME's standard formula doesn't capture it. More on that below.

M — Mortgage

Your remaining mortgage principal. This is separate from debt because it's usually your largest single liability, and because most families want to stay in the home.

If you owe $250,000 on your mortgage, that's your M.

E — Education (college costs)

If you intend to fund your children's education, include a lump sum per child. A rough placeholder is $100,000 per child for in-state public university — it's directionally right even if exact costs drift.

Two kids at $100,000 each = $200,000.

Do you have to include this? No — you could decide your kids take loans and apply for aid. But make it a conscious decision, not an accidental one. Omitting E because you "didn't think about it" is how families end up underinsured.

Subtract What You Already Have

DIME gives you a gross need. Now subtract your existing resources:

Current savings and non-retirement investments
Existing life insurance (through work or individual policies)
If you have no mortgage and no kids, most of this formula may not apply to you at all

If you have $50,000 in savings and no existing coverage, subtract $50,000.

The Formula, End to End

Here's a realistic worked example — a 35-year-old parent of two earning $100,000:

Component	Amount
D — Debt (car + credit cards + student loans)	$35,000
I — Income ($100k × 10 years)	$1,000,000
M — Mortgage balance	$250,000
E — Education (2 kids × $100k)	$200,000
Gross DIME total	$1,485,000
Minus existing savings	−$50,000
Coverage needed	$1,435,000

That's the number. Round it to $1.5M and buy a term policy.

Building Your DIME Coverage Number

Want your actual DIME number without doing the math?

Alistair's free Life Insurance Needs Calculator runs the DIME method on your real numbers — no agent, no upsell.

Try Alistair Free

Where DIME Falls Short

DIME is a framework, not a gospel. It has real blind spots worth knowing about before you rely on it:

It undervalues a stay-at-home parent. DIME keys off income. A full-time caregiver earns $0 but replacing their unpaid work — childcare, cooking, transportation, household management — can cost $40,000–$100,000 a year. If one spouse stays home, you need a policy on them too, sized by the cost of replacing that labor, not by salary.

It ignores inflation. The income you replace today won't buy the same things in 15 years. Some advisors discount future income replacement or inflate the income bucket to compensate. If you want precision, the 10x rule of thumb already bakes in a rough inflation cushion.

It treats 10 years as a default. Ten years is a decent average but not a law. A 45-year-old with a teenager and a 12-year mortgage doesn't need the same multiple as a 30-year-old with a newborn. Adjust the years to your actual situation.

It ignores final expenses. Funeral costs ($8,000–$12,000) and uninsured medical bills aren't in the DIME acronym. You can add them to the D bucket or just round your final number up.

DIME vs. Other Methods

DIME isn't the only way to size life insurance. The two common alternatives:

Human Life Value (HLV): projects your future earnings until retirement, discounted to present value. Mathematically rigorous, but produces enormous numbers — often 20–30x income — that lead people to buy more coverage than they need or abandon the exercise entirely.
The 10x rule: one line, no nuance. Fast, but doesn't account for debt, a big mortgage, or college savings.

DIME sits in the useful middle: granular enough to reflect your actual obligations, simple enough to actually compute. That's why it's survived as the default answer to "how much life insurance do I need?"

What to Buy Once You Have the Number

A healthy 35-year-old can typically lock in a 20-year, $1.5M term policy for roughly $50–$70 per month. That's the cost of protecting your family through your peak earning years.

Compare that to whole life, which might run $800–$1,200 per month for the same face amount — because it's bundled with an investment component. For almost everyone, buy term and invest the difference.

Buy coverage until your youngest child is financially independent and your mortgage is paid off. A 20-year term bought at 35 expires at 55 — if your obligations run longer, buy 30-year term or layer a second policy later.