Life insurance is an essential tool that people need to have. However, putting it together, making sure you have enough money in the fund could be difficult. Sure, there are calculators online that you can use to give you a rough estimate of what you’re going to need, but there are other ways of going about how to estimate how much life insurance you’re going to need.

Multiply your income by 10

This guideline, also known as the 10 times income, is shared a ton online, but it’s not necessarily the best way to go about estimating your life insurance needs. This doesn’t take into account your familys needs, your savings, or whatever life insurance policies you already have in place. If your partner is a stay-at-home parent, the 10 times income guideline doesn’t take into account the person that should have coverage regardless of their income, or lack thereof.

If a stay-at-home parent passes, there needs to be a coverage available, as the working parent would have to accommodate for the lack of services that the stay-at-home parent covers. This includes child care, housework, and other services that the stay-at-home parent did for free. The working parent would most likely have to pay someone to do those services, so the stay-at-home parent would need coverage if something happened to them

Buy 10 times your yearly income, plus $100k per child for college expenses

This guideline is adding another layer to the 10 times income guideline. By taking into account your children’s education, this gives them some leeway for college expenses. College is a necessary part of a person’s life insurance calculation if you have children. If something happens and you or your partner pass, its absolutely necessary that you leave something behind that can help them with their journey into adulthood. Higher education is something that can be so beneficial to them. 

The DIME formula

This formula overall is a way to take a detailed look at your finances. DIME stands for Debt, Income, Mortgage, and Education. These are necessary factors to take into account when you’re considering how much money to have in your life insurance fund. 

  • Debt and Final Expenses: Something you should take into account is to add up the debts that you have (other than your outstanding mortgage), and include money for the expenses for the funeral.
  • Income: This helps you decide how much support you can give your family. Take the amount of years you want to give them leeway, and then multiply your annual income by that number
  • Mortgage: This makes it so that your mortgage doesn’t fall on the people you’re leaving behind. Be sure to allot money so that they can pay off the rest of your mortgage.
  • Education: You want to make sure that you can help your children go to school and college. Make sure that you account for the money that it will take per kid and add that to your fund.

By taking into account everything you need to know, you can be sure that you’re leaving support behind in case you pass.