You’ve probably heard the rule: ten times your annual income.
It’s a reasonable starting point and a poor stopping point. It ignores your debts, your savings, whether your spouse works, how many kids you have and how old they are, and whether you’re carrying a mortgage or own outright. Two people earning identical salaries can need wildly different amounts.
Here’s a better approach. It takes about fifteen minutes.
The DIME Method
Four categories. Add them up.
D — Debt
Everything your family would still owe. Credit cards, car loans, student loans, personal loans, medical debt, business debt you’ve personally guaranteed. Include final expenses here too — funeral and burial costs are real and arrive immediately.
I — Income Replacement
Your annual income multiplied by the number of years your family would need it.
The honest question is how long. Until your youngest finishes college? Until your spouse could realistically re-enter the workforce at full earning capacity? Until retirement? A parent of a two-year-old is answering a very different question than a parent of a seventeen-year-old.
Don’t forget non-salary income: bonuses, commissions, rental income, and the value of employer benefits your family would lose.
M — Mortgage
Your remaining balance. Paying off the house does more than eliminate a payment — it removes the possibility of your family having to move during the worst year of their lives.
E — Education
What you’d want to provide for each child. Texas public university costs are more manageable than many states, but multiply by the number of kids and add several years of inflation.
Then Subtract What You Already Have
From that total, subtract:
- Existing life insurance, including employer group coverage
- Savings and investments your family could access
- Social Security survivor benefits, if applicable
- Other assets that could reasonably be liquidated
What’s left is your gap. That’s the number.
The Categories People Systematically Underestimate
The stay-at-home parent. The most common and most costly omission. A stay-at-home parent produces no salary and enormous economic value — childcare, transportation, household management. If that person died, the surviving spouse would face substantial new costs, often while reducing work hours. Insuring only the earner is a mistake, and it’s the default assumption almost everywhere.
Childcare during the transition. A surviving spouse who was sharing childcare now needs to buy it while working full time.
Grief has a cost. Most people cannot function at work immediately after losing a spouse. Building in six to twelve months of breathing room is realistic, not indulgent.
Health insurance. If the deceased carried the family’s employer health plan, the survivors have to replace it. That’s a large recurring expense that appears overnight.
A Worked Example
A 35-year-old in Fort Worth earning $85,000, married with two young children, spouse works part-time:
- Debt (car loans, credit cards, final expenses): $40,000
- Income replacement ($85,000 × 15 years): $1,275,000
- Mortgage balance: $310,000
- Education (2 kids): $200,000
Total need: $1,825,000
Less existing employer coverage ($170,000) and savings ($60,000) = roughly $1.6 million gap.
That number startles people. It’s also why term life exists — a death benefit that size is far more affordable in term form than most people assume, particularly for someone healthy in their thirties.
A Reasonable Objection
Is $1.6 million overkill? Possibly, depending on your assumptions. If you’d rather replace income for 10 years than 15, or your spouse would return to full-time work quickly, the number drops meaningfully.
That’s the point of doing the calculation instead of using a multiplier — you can see which assumption is driving the total and decide whether you believe it.
Key Takeaways
- The 10x rule is a starting point that ignores your actual circumstances.
- DIME — Debt, Income, Mortgage, Education — produces a defensible number.
- Subtract existing coverage and assets to find your real gap.
- Insure the stay-at-home parent. That value is real and routinely ignored.
- Recalculate after any major life change: a birth, a move, a new mortgage, a job change.
Frequently Asked Questions
Is employer life insurance enough?
Usually not. Group coverage is often limited to one or two times salary, and it typically ends when you leave the job — including if you leave for health reasons, exactly when new coverage is hardest to get.
Should a stay-at-home parent have life insurance?
Yes. The economic value of childcare, transportation, and household management is substantial, and replacing it would represent a significant new expense for the surviving spouse.
How often should I recalculate my coverage need?
After any major life event — marriage, a child, a home purchase, a significant income change — and otherwise every few years.
Can I have more than one life insurance policy?
Yes. Layering policies is common — for example, a large term policy for the child-raising years plus a smaller permanent policy for final expenses.
Disclaimer: This article provides general information and is not insurance, tax, or legal advice. Coverage varies by policy and insurer. Consult your agent or a qualified advisor for guidance on your situation.
Want help running your actual numbers? It takes about fifteen minutes and there’s no obligation. Get in touch or learn about our life insurance options.
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