How much life insurance do I actually need?

Start with what the money has to do

"How much life insurance do I need?" is really the question "how much money would my family need if my income disappeared tomorrow?" That reframing matters, because it moves the decision away from a salesperson's rule of thumb and toward your actual life.

A widely used shortcut — often called the DIME method — adds up four things:

• Debt — everything except the mortgage: car loans, credit cards, student loans, business debt you personally guaranteed.
• Income — the years of salary your family would need to replace, so they can keep paying the bills without upending their life.
• Mortgage — the full remaining balance, so the home is secure.
• Education — a realistic estimate of what you'd want to fund for your children.

Then subtract what you already have: savings, investments, and any existing life insurance. What's left is your coverage gap.

A simple, clearly hypothetical example

Imagine a household with roughly $80,000 of income, about $250,000 left on the mortgage, $20,000 in other debt, two young children, and $50,000 in savings. Replacing ten years of income (about $800,000) plus the mortgage and debt, plus a rough college target, minus savings, points to a need somewhere near $1 million of coverage.

These numbers are rounded and hypothetical — meant only to show how the pieces fit together, not to predict your result. Your own figure depends on your income, your debts, how long your family needs support, and what you've already built.

Why the rules of thumb fall short

"Ten times your income" is popular because it's easy, and it often lands in the right range. But it can badly miss in either direction. A young couple with a big mortgage and three kids may need far more than 10x. A near-retiree with the house paid off, no dependents, and a full nest egg may need far less — or none at all.

The honest cost of over-buying is real, too: paying premiums on coverage you don't need is money that could go toward retirement or debt. The goal isn't the biggest policy — it's the right-sized one.

Term first, for most families

For pure income replacement during the years your family depends on you, term insurance usually delivers the most protection per dollar. Permanent coverage can play a role for lifelong needs or specific planning goals, but it costs more for the same death benefit. Deciding how much comes before deciding what kind.

Your next step

Run your own numbers, then pressure-test them with someone who isn't paid to hand you a single product. The right amount is the one that would let your family make the choices they'd want to make — not the choices a shortfall would force on them.