The most common life insurance advice is a flat “buy 10 times your income” rule. It’s easy to remember and usually wrong — it ignores whether you have a mortgage, how many years of income you actually need to replace, and what you’ve already saved. The DIME method fixes that by adding up four real numbers instead of guessing at one.
The Four Components of DIME
Debts: everything outside the mortgage — credit cards, auto loans, student loans, personal loans — that would otherwise fall to whoever survives you. Income: your annual income multiplied by the number of years your dependents would need it replaced; parents of young children often use 20–25 years, while empty nesters closer to retirement may only need 5–10. Mortgage: your full remaining mortgage balance, so the house is paid off rather than becoming a monthly burden. Education: a realistic estimate of remaining costs to raise and educate any children.
The Formula
Add Debts + (Annual Income × Years Needed) + Mortgage Balance + Education Costs, then subtract existing life insurance coverage and liquid savings that could cover part of the gap. What’s left is your real coverage target — not a round number pulled from a rule of thumb.
A Worked Example
A 35-year-old earning $75,000 with $15,000 in non-mortgage debt, a $280,000 mortgage balance, two young kids (using 20 years of income replacement), and an estimated $120,000 in remaining education costs would calculate: $15,000 + ($75,000 × 20 = $1,500,000) + $280,000 + $120,000 = $1,915,000, minus any existing coverage or savings. That’s nearly double what the flat “10x income” rule ($750,000) would have suggested — the difference between a family staying in their house and a family having to sell it.
When to Recalculate
Rerun the calculation after a marriage, divorce, new child, home purchase, major raise, or paying off a significant debt — each one moves the number meaningfully. Even without a triggering event, recheck it every 3–5 years, since income and debt balances drift. Term life insurance (see our comparison of term vs. whole life costs) is almost always the cheapest way to fund a DIME-calculated number, since the coverage need is highest during working years with dependents and drops off later.
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