Estimating life insurance can be an intimidating task if you are not sure where to start. While there are multiple tools and strategies that help people project how much life insurance is needed, the most effective and simplest tool is the DIME formula. The DIME formula is an easily remembered acronym that stands for Debt, Income, Mortgage, and Education. Today we will break down each letter of the DIME formula to ensure you are best prepared to keep your family’s future secure.

Debt Standing

Outstanding debt can be detrimental to the livelihood of your family if not accounted for properly. As a first step to the DIME formula, start by adding up all accrued debt:

• Student Loans: $10,000
• Car Loan: $5,500
• Credit Card: $6,000
• Personal Loans: $2,000

Using this example, we are left with $23,500 of debt that you will want to be covered by your life insurance plan to ensure your family’s financial future.

Income Evaluation

The next step is evaluating your annual income. It is a best practice to estimate all sources of income including a spouse’s and then take that number and multiply by the number of years your family will need the support. Say a family needs financial support for 10 years with a combined income of $60,000. Multiplying this together, your family will need $600,000 to be financially secure for 10 years without your income.

Mortgage Calculation

Having enough money to keep your family in your home securely is another important part of the DIME formula. With this step, simply add up the remaining balance on your mortgage. If you are renting, consider adding 10 years of rent income to your plan as a substitute. For this example, let’s assume you have $100,000 left on your mortgage.

Education Estimation

For the final step, add up the amount of education expenses needed to send your children to college or private school. It is common to estimate $100,000 per child to cover any schooling needs. If you are without children, treat this like an emergency fund for instances like home/car repairs or medical emergencies.

Assuming you have 2 kids and by adding everything together, we get $923,500. Using this number provides an accurate estimate of how much life insurance you will need to protect your family’s future.

The “Why” of Life Insurance

Now that we have gone over the DIME formula and how it can benefit your planning, it is crucial to understand the “why” of life insurance. Put simply, life insurance protects your family when you pass away. If you are holding debt or have excess liabilities, all that is passed on to your family if you pass away without life insurance. With life insurance, family members or other beneficiaries receive a death benefit in the form of a lump-sum payment that can be used to cover debts, loss of income, mortgage, and future education for your children. For more information on life insurance basics, check out our white paper here.

Unfortunately, in the US alone it is estimated that 41% of Americans die without passing any life insurance benefits to their loved ones. To ensure your family’s financial future, contact us today to find out what life insurance plan best fits your needs and receive a free quote today.