When people first consider buying life insurance, the most common question is, “How much coverage do I need?” It’s a good question, but the answer often surprises people. Many individuals underestimate the amount of coverage needed to truly protect their loved ones, thinking only in terms of burial costs or replacing a year or two of income. In reality, life insurance is about far more than just final expenses. It’s about long-term financial stability, security, and peace of mind for those you care about.
Start with the Basics: What Are You Protecting?
Life insurance isn’t for you, it’s for the people who depend on you. If you were no longer around, what financial gaps would they face? Consider:
• Lost income: If you’re the primary earner, your income may need to be replaced for 10–20 years or more.
• Debt repayment: Mortgages, car loans, credit cards, and other debts don’t go away when you do.
• Education costs: Will your children still be able to afford college?
• Day-to-day living: Your family still needs groceries, utilities, transportation, and health care.
• Future goals: Legacy giving, business succession, or supporting aging parents may be on your list.
The 10-15x Rule (and Why It’s Just a Starting Point)
A common rule of thumb is to buy coverage equal to 10–15 times your annual income. That’s a useful benchmark, but don’t stop there. It assumes your family can invest the death benefit wisely and live off the interest, which may not always happen. It also doesn’t account for inflation, lifestyle upgrades, or emergencies.
A More Comprehensive Method: The DIME Formula
The DIME method looks at four key areas:
1. Debt: Total outstanding debts and mortgage.
2. Income: Number of years your family will need income support.
3. Mortgage: Total balance owed or future housing needs.
4. Education: Estimated cost of college for each child.
Dime Formula Source: Life Happens. “Life Happens, https://lifehappens.org. Accessed 1 June 2025.
When you total these up, the number is often much higher than expected, yet far more accurate in addressing real needs.
Don’t Forget Non-Income Earners
Stay-at-home parents often skip life insurance, but they shouldn’t. If they pass away, surviving partners may need to pay for childcare, transportation, meal preparation, and more, costs that can quickly add up.
Future-Proofing Your Policy
Life changes, so your insurance should too. Consider:
• Riders that allow you to increase coverage later without additional medical exams.
• Permanent life insurance if you want coverage for your lifetime or to build cash value.
• Policy reviews every few years or after major life events (marriage, kids, career changes).
Conclusion : It’s About Peace of Mind
It’s easy to think about life insurance as an expense, but really, it’s an investment in your family’s future. Being adequately protected is far better than leaving your loved ones vulnerable. As life gets more expensive, your coverage should grow with it.
Bottom Line: Take the time to assess the numbers carefully. When it comes to life insurance, enough is not a guess, it’s a plan. And more often than not, that plan requires more coverage than you think.
For more information on the benefits of life insurance; grab a copy of my book “More Than Just A Payout” @amazon.com/author/watto61
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