The DIME Method 

What it is and how to use it

Determining how much life insurance coverage you need can be confusing and complicated. How much to save? What coverage is best for the family? 

A common approach to figuring out how to calculate is the DIME method. Typically, this is a good start for calculating life insurance needs.  What exactly is that? DIME is an acronym for the following:

  • (D) Debt: How much debt would you leave when you pass? Your existing debt should be added up to determine how much it would cost to repay any outstanding balances. Having cash to pay off your bills can help your family’s financial stability during a difficult time. Total up your debt including credit cards, student loans, personal loans, and auto loans to ensure you get enough coverage to pay these off. 
  • (I) Income: Account for your annual income. How long do you want to provide for your loved ones? Ten years? Fifteen years? You can multiple your current income by the number of years you want to insure. For instance, if your spouse and children would be reliant on your $50,000 annual income for 10 years, $500,000 in coverage would be needed. If your spouse works, use your combined annual income. That way, the surviving spouse can cover any bills that come in.  
  • (M) Mortgage: Does your family want to stay in the family home? If so, your mortgage is one of the biggest ticket items in your budget and should be at the top of your list to pay off in full. Whatever the remaining mortgage balance should be considered and added to your running total. Paying off a home can provide security and stability after you’re gone and help keep your family in their home.  
  • (E) Education: This can be complicated depending on how many children you have. Are you paying for their school now? Private or public? Let’s not forget, school can be very expensive. Do your due diligence, figure out how much education costs would be per each kid, and multiply your choice by 4 years (or more if doctor, lawyer, graduate). Remember to add an amount that covers tuition, room and board for each child going to college.

Tally these numbers from the DIME method. You should have a rough estimate of the amount of coverage you will need for your family. If you own on or more insurance policies, you can reduce this estimated number or increase it to account for anticipated pay raises throughout your career.

Why do we need life insurance?

Funeral and final expenses is the number one reason people buy life insurance, according to a 2020 survey by LIMRA and Life Happens, both industry-funded groups. (People could choose multiple reasons.)

  • Burial/Final expenses: 84%
  • Supplement retirement income: 57%
  • Transfer wealth: 66%
  • Help payoff mortgage: 50%
  • Replace lost wages/income: 62%
  • Home expenses: 48%
  • Tax advantaged investment: 45%
  • Estate taxes: 43%
  • Pay for college: 37%
  • Business purposes: 28%
  • Charitable gift: 27%

The need to provide loved ones with financial security has heightened since the pandemic. A recent LIMRA survey found that 44% of households said they would face financial hardship within six months if the primary wage earner were to die prematurely. For 28% of households, financial hardship would hit within one month.*

Finding the right life insurance coverage may take some time. BUT – well worth your time to invest in the future of your family. Be sure to show love beyond your living years. Don’t leave your loved ones unprotected, they’ll thank you for it.

Contact us for more information. 

* https://www.forbes.com/advisor/life-insurance/how-much-life-insurance-do-you-really-need/