The DIME method: working out how much life cover you actually need

"How much life insurance do I need" is usually answered with a multiple of income — ten times salary is the common shorthand. It is a reasonable starting point and a poor ending point, because it ignores debt structure, existing cover and what the money actually has to do.

The DIME method

DIME is an acronym for the four things the payout typically has to cover:

• D — Debt: credit cards, personal loans, car loans, student loans
• I — Income: the years of your income your household would need to replace
• M — Mortgage: the outstanding balance, so the family home is not at risk
• E — Education: the cost of the schooling you intend to fund

Add those four, then subtract what your household already has available — savings, investments, and any existing life cover. The remainder is your gap.

Why it beats the income multiple

Two people earning the same salary can have completely different needs. One rents, has no dependants and $20,000 in savings. The other has a $400,000 mortgage, two children and no savings. A ten-times-income rule gives both the same number, which is wrong for both.

DIME responds to structure rather than income alone. It also makes the assumptions visible: if you decide to replace five years of income rather than ten, you can see exactly what that choice costs in coverage.

Choosing the income-replacement period

This is the most judgement-heavy input. Common approaches:

• Until the youngest child reaches independence — typically 15–20 years
• Until retirement — the full remaining earning period, which produces the largest number
• A fixed 5–10 years — enough for a surviving partner to retrain or adjust, on the assumption they will earn afterwards

There is no universally correct answer. What matters is that the choice is deliberate rather than inherited from a rule of thumb.

Term length matters as much as amount

Most buyers focus on the coverage amount and then pick a term almost arbitrarily. The term should match the obligation:

• A 20-year term covers a child through to independence
• A 30-year term matches a 30-year mortgage
• Cover beyond your earning years is usually unnecessary for pure income replacement

Matching term to obligation is usually cheaper than buying a longer term "just in case", because you are not paying for coverage in years when nothing needs protecting.

What this article cannot tell you

Whether you will be approved, and at what price. Underwriting depends on health, age, family history and lifestyle, and quoted rates are typically for the healthiest applicants. Our life insurance needs calculator runs the DIME arithmetic on your figures; it produces a coverage target, not an eligibility decision.