3 Ways to Estimate Your Life Insurance Need 

Life insurance is an important pillar within your financial plan.  It can provide money for the people who rely on you should the worst happen.  There are multiple ways to estimate your life insurance need.  These can vary from the simple rule of thumb, but probably less accurate to an in-depth review of needs as well as resources to get a full picture.  Your insurance needs will change over time so it’s important that you review it regularly.  Here are 3 methods to estimate your life insurance need:

Method #1 – The quick method – 8-10 times your income

– Gives you a ballpark of what your needs are

– Doesn’t look at your specifics
– Doesn’t consider your assets
– No consideration for a spouse who may not work, but takes care of the children

Method #2 – Quick method + $100,000 per child for education        

– Gives you a ballpark of what your needs are and considers a large expense that might occur in the future

– All of the same limitations of method 1 as it’s still not specific
– The most expensive colleges now cost over $300,000 per year so $100,000 may not be enough

Method #3 – The DIME formula

For the military folks, this is not Diplomatic, Information, Military, or Economic sources of power.

With respect to insurance, DIME stands for:
Debt and final expenses – add up all your debts (other than your mortgage) plus an estimate of your funeral expenses

Income – Decide how many years your family would need support and multiply that by the cost to maintain their lifestyle

Mortgage – Calculate your mortgage payoff

Education – Estimate how much it will cost to send your kids to college

Sum these expenses to estimate your life insurance need.

For all three methods, you’ll want to subtract any assets you’ve accumulated that can offset the requirement.  This could be retirement accounts like IRAs, 401Ks, or savings and education accounts.  Additionally for military, you should factor in the income from the Survivor Benefit Plan if you’re on active duty or elected that at retirement.  If Social Security survivor benefits will be available that should also be considered.

Also, subtract any insurance you have in place from the total.

The difference between these two numbers is how much insurance coverage you need to cover all your family’s expenses.

For military members, SGLI is available up to $400,000 for the member and up to $100,000 for the spouse.  Depending on your calculated needs this may or may not be enough.

There are many insurance calculators on the web that can help you determine your specific requirements.  Most insurance companies will have some version of a calculator and here’s one from a non-insurance site:

One last note:  Ensure whomever you are dealing with when purchasing insurance is looking out for your best interest and has a fiduciary duty to you.  Unfortunately, the industry has a reputation for putting people into inappropriate or more expensive life insurance products.


  • Mike Hunsberger, ChFC®, CFP®, CCFC

    Mike Hunsberger, ChFC®, CFP®, CCFC is the owner of Next Mission Financial Planning located in Saint Charles, Missouri serving clients across the US and wherever the military takes them. After 25 years in the Air Force he started his firm to support military, former military, and retirees through values-based financial planning enabling clients to live their best lives.