How Much Life Insurance Do You Actually Need? (2025 Calculator Guide)
When my husband and I first talked about life insurance he suggested “like, I don’t know, $100,000?” Based on absolutely nothing. Just seemed like a big number.
Made him sit down and actually do the math. We needed more like $800,000.
The difference between “seems like enough” and “what family would actually need” is the difference between spouse being okay for maybe two years versus actually replacing income until kids are grown.
Most people either wildly overestimate or underestimate. Generic advice is “get 10-12x your income” which… fine I guess as starting point. But your situation might be different.
The DIME method (actually useful)
DIME stands for Debt, Income, Mortgage, Education. Add them up and that’s roughly what you need.
Debt: Everything you owe that isn’t mortgage. Car loans, student loans, credit cards. All of it. If you died tomorrow your estate would have to pay these or your spouse would be stuck with them.
Income: How many years does your family need your income replaced? Multiply annual income by that number. Kids are 5 and 8? Maybe 15 years until youngest is independent. That’s 15x your income.
Mortgage: Remaining balance. So spouse can pay off house and not worry about housing.
Education: Cost to put kids through college. If you want that covered.
Add them up. That’s your number. Probably way higher than you expected.
Example with actual numbers
Let’s say you make $75,000. Two kids ages 4 and 7. House with $250,000 mortgage remaining. $30,000 in other debt. Want to cover state school for both kids.
Debt: $30,000
Income: $75,000 x 15 years = $1,125,000
Mortgage: $250,000
Education: $100,000 per kid x 2 = $200,000
Total: $1,605,000
So you’d need roughly $1.5-1.6 million in coverage. Not $100,000. Not even $500,000.
Sounds insane right? But that’s what it actually costs to replace your income for 15 years, pay off the house, handle debt, and put two kids through college.
The 10x rule is just a shortcut
10-12x income is fine as quick estimate. Make $80,000? Get $800,000-960,000 coverage. Not wrong. But doesn’t account for your specific debts, mortgage, whether you want education covered, whether spouse works.
If spouse already makes good money and you’d have two incomes anyway? Maybe need less. Single income family where spouse would have to go back to work? Might need more to cover transition period.
Stay-at-home parent who doesn’t earn income? Still need coverage—childcare costs are insane. Someone has to watch kids if stay-at-home parent dies.
What to subtract
You might already have some coverage. Group life insurance through work is common—often 1-2x salary. Social Security survivor benefits exist for families with kids. Existing savings and investments.
Subtract what you already have from what you need. Gap is what you need to buy.
Don’t rely too heavily on work insurance though. It disappears if you leave job. And it’s usually not enough anyway.
Cheaper than you think
Here’s the good news. term vs whole life insurance is stupid cheap for the coverage you get. That $1.5 million policy for a healthy 35-year-old? Probably $50-70 a month for 20-year term.
People assume they can’t afford enough coverage. They can. They’re just thinking about whole life prices, not term.
$500,000 coverage for healthy non-smoker in their 30s? Like $20-30 a month. A million? $40-50 probably. These are rough numbers obviously—depends on age, health, term length.
Both parents need it
This is something people forget. Both working parents need coverage. And stay-at-home parents need it too.
If stay-at-home parent dies, surviving parent has to pay for childcare. Full-time childcare for two kids is easily $2,000-3,000+ a month depending on where you live. That adds up fast.
Don’t just insure the “breadwinner.” Insure everyone whose death would create a financial burden.
How we figured out our number
We did the DIME thing. Added up mortgage, my husband’s student loans still lingering, estimated what we’d need to maintain lifestyle until kids are grown. Came out to about $800,000 for each of us.
Got quotes. Was way cheaper than expected. Now we both have coverage and if something happens the other person isn’t financially destroyed on top of emotionally destroyed.
According to LIMRA research almost half of life insurance owners say they don’t have enough coverage. They know they’re underinsured but haven’t fixed it.
Don’t be that person. Do the math. Get coverage.
Liability is scratching at the door wanting in—it’s cold today—but seriously. Pull up a calculator. DIME method. Figure out your actual number. It’s probably higher than you assumed but coverage is probably cheaper than you feared.
