Life insurance is one of the most important things you can do for your family. Most people are aware they need some life insurance, but it can be challenging to determine how much you need. How much you need will depend on several factors, but you can use the DIME formula to calculate the amount that’s best for you.
Calculating Life Insurance if You Are Single
If you are single and no one else is relying on your income, you can get by with less coverage. You’ll need enough to cover your final expenses and debts, minus any assets you have. Estimate your assets. Then subtract any debts you have and what you estimate for final expenses. If the number is negative, you’ll need life insurance that is at least that amount to break even.
Example: 10,000 (assets) – 5,000 (debt) – 13,000 (final expenses) = -8,000. You would need at least $8,000 worth of life insurance.
Calculating Life Insurance With Dependents
The picture becomes more complicated when you have others relying on your income. This can include a spouse, children, and even elderly parents.
The DIME formula takes into account:
- D: Debts
- I: Income
- M: Mortgage
- E: Education
Debts should include anything that you owe by yourself, or with a spouse and any final expenses.
Your income will need to be replaced if you have others depending on it. Your yearly income times 10 is a good rule of thumb. However, if you have young children, you may want to consider using the number of years they will be in school or the number of years your spouse will rely on your income.
Mortgage is the amount it would take to pay off your home. If you plan on sending children to college, you should add the estimated expense of college as well. Add all these items together, and that’s how much life insurance you will need.
If you need life insurance, contact us at Greater Cincinnati Insurance Services in Cincinnati, OH. We can help you determine the right amount of coverage for your needs.