3 calculation approaches
Life insurance needs analysis: three methods compared
Life insurance need is the gap between what your dependents would need and what they would have if you died today. Add up debts, income replacement (years × annual salary), mortgage, education for children, and final expenses; subtract existing assets and existing coverage. The DIME method (Debt + Income + Mortgage + Education) is a common shorthand for this calculation.
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Try calculatorKey takeaways
04 · ideas- DIME method adds Debt, Income replacement, Mortgage, and Education
- Human Life Value estimates the present value of future earnings
- The multiple-of-income approach is a simplified rule of thumb
- Different methods reflect different assumptions about what insurance should accomplish
Three main methods are used to estimate life insurance coverage needs.
1. DIME Method:- Debt: All non-mortgage debt
- Income: Annual income x years of replacement needed (typically 10-20)
- Mortgage: Outstanding balance
- Education: Projected college costs for children
2. Multiple of Income: 10-12x annual income. A rough rule of thumb for quick estimates.
3. Human Life Value: Estimates the present value of all future earnings, accounting for taxes and personal consumption.