How life insurance needs are calculated
The DIME method — Debt, Income, Mortgage, Education — is the most widely recommended framework for sizing life insurance. It captures the four financial obligations that would fall to your family if you died tomorrow. The sum, minus existing coverage and liquid assets, is your gap.
The four components
- Debt: Credit cards, auto loans, student loans, personal loans — everything that would need to be paid off.
- Income: 10–15 years of after-tax income replacement, giving your family time to adjust financially.
- Mortgage: The remaining balance, so your family can stay in their home.
- Education: Estimated college costs for each child, adjusted for inflation.
Beyond DIME: key-person and business coverage
If you're a business owner, founder, or critical revenue producer, your business may need separate coverage. Key-person insurance protects the company from the financial impact of losing someone essential to operations — it's typically sized as a multiple of that person's annual revenue contribution.
Income protection while you're alive
Disability is statistically more likely than death during working years. Employer-provided long-term disability typically covers 40–60% of pre-disability income, but that may not be enough — especially after-tax. The Disability Insurance Income Replacement calculator above shows the gap and helps you size a private policy to fill it.