The single most common mistake in buying life insurance isn’t picking the wrong company — it’s picking the wrong coverage amount. Here’s a step-by-step way to land on a number that actually fits your situation.
Start With the DIME Method
The DIME method is the most reliable starting point: add up your Debt, years of Income to replace, remaining Mortgage balance, and future Education costs for your kids. This produces a number grounded in your actual obligations rather than a rule of thumb.
The Quick Alternative: Income Multiples
If you want a faster estimate, many advisors use a simple income multiple based on age:
| Age | Typical Coverage Multiple |
|---|---|
| Under 40 | 25–30x annual income |
| 40s | 20x annual income |
| 50s–60s | 10–15x annual income |
This shortcut works reasonably well but skips your specific debt and education costs — use DIME instead if you want precision, or as a sanity check against your income-multiple estimate.
Adjust for What the Formula Misses
Neither method automatically accounts for: a non-working spouse’s replacement value (childcare, household management), existing savings and life insurance you already have, or final expenses if you’re older and past the income-replacement stage. Subtract existing coverage and savings from your total; add an estimate for a stay-at-home spouse’s contribution if that applies to you.
Common Coverage Amounts and Who They Fit
| Coverage | Typical Fit |
|---|---|
| $100,000–$250,000 | Single, no dependents, final expenses + some debt |
| $500,000 | Young family, moderate mortgage, one income to protect |
| $1,000,000+ | Higher income, larger mortgage, multiple children |
See our coverage vs. price breakdown for what each amount actually costs by age.
Frequently Asked Questions
Is it better to over-insure slightly?
Generally yes, within reason — the cost difference between $500,000 and $750,000 of term coverage is often smaller than people expect, and it’s cheaper to buy enough now than to apply for a second policy later at an older age.
Should I recalculate this every year?
Not annually, but revisit it after major life events: a new child, a new mortgage, a significant income change, or paying off a big debt.
The Bottom Line
A quick calculation beats guessing, but don’t treat any formula as gospel — adjust it for what you already have saved and insured, and for anyone in your household whose contribution isn’t a paycheck.
See what your calculated coverage would cost — a quote takes about five minutes.