Key takeaways
- The quick rule is ten to twelve times your annual income. It is a starting point, not an answer.
- The careful method is DIME: Debt, Income replacement, Mortgage, Education — minus savings and cover you already hold.
- The most common mistake is counting employer cover as if it were permanent. It is usually one to two times salary and ends with the job.
- A stay-at-home parent has a real economic value that DIME misses entirely — childcare, and the work that would have to be bought in.
- Going from $500,000 to $1 million costs roughly 70% more, not 100% more, so round up rather than down when the number is close.
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The quick rule, and what it misses
Ten to twelve times gross annual income. On $60,000 that is $600,000 to $720,000, and for a lot of households it lands close enough to be useful.
What it ignores is everything specific about you. It gives the same answer to a 28-year-old with a newborn and a $340,000 mortgage as to a 58-year-old whose children have left and whose house is paid for, even though one has thirty years of obligation ahead and the other has almost none. Use it as a sanity check on a number you calculated properly, not as the calculation.
The DIME method
Four things to add up, then two to subtract.
D — Debt
Everything except the mortgage, which gets its own line: car loans, credit cards, personal loans, student debt that does not die with you, and anything co-signed. Co-signed debt is the one people forget; it lands entirely on the other signatory.
I — Income replacement
The annual amount your household actually needs, multiplied by the number of years it needs it. Not your gross salary — the figure that keeps the household running. And be deliberate about the number of years: until the youngest child is independent, or until your partner reaches retirement and pensions take over, whichever is longer.
M — Mortgage
The outstanding balance, not the original loan and not the property value.
E — Education
Only if you intend to fund it. If you do, use a real figure for the kind of institution you have in mind rather than a national average, and count each child.
Then subtract
Liquid savings and investments your family could actually reach, and any life cover already in force — but read the next section before you count the policy at work.
Work out your number
The DIME method, as an agent would run it. Everything stays in your browser — nothing is sent anywhere and nothing is saved.
This is arithmetic on the figures you entered, not a quote and not advice. Round up rather than down when the result falls between two amounts — published averages show that doubling the death benefit costs roughly 70% more, not 100% more, so the extra cover is the cheapest part of the policy.
Now find out what that amount of cover would actually cost you.
Price this amount →A worked example
A household: two parents, 36 and 34, children aged 6 and 3. One earns $68,000, the other $41,000. Mortgage outstanding $284,000, car loan $14,000, credit cards $6,000. Savings $22,000. Working out cover on the higher earner:
| Component | Calculation | Amount |
|---|---|---|
| Debt | Car loan $14,000 + cards $6,000 | $20,000 |
| Income replacement | $55,000 a year for 15 years, until the youngest is 18 | $825,000 |
| Mortgage | Outstanding balance | $284,000 |
| Education | $60,000 per child, two children | $120,000 |
| Subtotal | $1,249,000 | |
| Less savings | Accessible savings | −$22,000 |
| Less existing cover | Employer group life, 2× salary | −$136,000 |
| Cover needed | $1,091,000 |
Illustration only, using round figures, to show how the DIME method is applied. It is not a recommendation and every input should be replaced with your own.
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That household should be looking at roughly $1 million, not the $250,000 or $500,000 policy most people in that position actually buy. And the quick rule would have said ten times $68,000, or $680,000 — barely more than half.
Two details from that table are worth pulling out. The income replacement line is the largest by a distance, and it is entirely driven by the number of years you choose. And the employer cover, which feels substantial, covers 12% of the need.
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Start my free quoteCounting what you already have
Employer group life is the most over-counted asset in this calculation, for three reasons.
It is small. One to two times salary is typical. Against a fifteen-year income replacement need, that is a rounding error.
It ends with the job. Not at retirement — at the end of the job, including a redundancy, a career change, or a period of illness that ends your employment. That is precisely when replacing it is hardest and most expensive.
Conversion rights are usually poor. Group policies often allow conversion to an individual policy without medical questions, which sounds valuable until you see the rate, which is typically far above what you would pay for an individual policy in good health.
Take everything the employer offers — it is cheap or free — and then build your real cover independently of it.
If one parent does not earn a salary
DIME asks for income replacement, and a parent at home with children has no salary to replace. That does not mean there is nothing to insure.
The economic question is: if that person died, what would the surviving partner have to buy? Full-time childcare for the years until school, after-school and holiday cover for years after that, and possibly a reduction in the surviving partner’s own working hours. For a household with a three-year-old and a six-year-old, that is a genuinely large annual number for a long stretch of years.
A policy on a non-earning parent is not sentimental. It funds the services the household silently relies on.
Rounding the number
When the calculation lands between two round amounts, price both before deciding — because cover gets cheaper per dollar as it gets larger. Published averages for a 40-year-old man on a 20-year term show $32 a month at $500,000 and $55 at $1 million (Forbes Advisor, 22 June 2026): double the death benefit for about 70% more.
A large part of any premium is fixed policy cost, so the extra half a million is the cheapest cover in the whole policy. If your number is $780,000, do not buy $500,000 because it sounds tidier. The full cost tables.
Frequently asked questions
Is ten times income enough?
Sometimes. It is a reasonable starting point for a household with modest debt and older children, and often substantially short for one with a large mortgage and young children. Run DIME and compare the two; where they diverge sharply, DIME is the one describing your situation.
Should both parents be insured?
Generally yes, including a parent who does not earn a salary — the replacement cost of the work they do is real and often large. The policies do not need to be the same size.
What about cover for children?
A child’s death is not a financial loss in the way an earner’s is, so child policies are usually sold on other grounds: covering funeral costs, or locking in future insurability. Both are legitimate but modest reasons, and neither should come before insuring the adults adequately.
Should I buy one large policy or several?
Laddering — a 30-year policy for the mortgage plus a 20-year policy for the child-rearing years — matches cover to obligations that end at different times, and usually costs less than one large long policy. It also means more paperwork. Both are defensible.
Do I need to redo this calculation?
Yes, at the events that change the inputs: a new child, a house move, a significant change in income, a divorce, a remarriage, paying off the mortgage. Reviewing it every few years is enough between those.