The cover is a sum, not a rule of thumb

Published 2026-09-20 · Last reviewed 2026-09-23

Term insurance is priced in a multiple of income - "ten times your salary" - because that is an easy thing to quote over the phone. It is not a bad starting estimate; it is a bad stopping point, because it takes one number and ignores everything else a policy is actually meant to do. The DIME method is the version that adds the parts: debts, income, mortgage, education. This page runs it once, for one family, with the same engine the Life Insurance Calculator uses, and shows what the honest sum looks like against the shorthand.

The four parts of the need

The worked family has an income of $100,000 a year and two young children. The engine separates the need into the parts a policy will actually be spent on. Replacing the income for the twenty years the children are dependent costs $2,000,000 - that alone is the multiple of income the shorthand never gets to. On top of it sit the debts the household would carry on: a $280,000 mortgage and $15,000 of other debt come to $295,000. Two children's education at $120,000 each adds $240,000. And a final $15,000 covers the funeral and estate costs. Add those four and the engine reads a gross need of $2,550,000.

What the family already has comes off

A policy does not need to buy everything from nothing. The family has $40,000 of savings it could actually spend and $50,000 of cover already in force, so the engine takes both off the top: $90,000 against the gross need of $2,550,000. The number a policy is there to provide is the gap that is left, $2,460,000. That gap is what makes the rule of thumb look thin. For this family it is 24.6 times income - more than double the "ten times" shorthand - because the shorthand counts only a slice of the income and none of the mortgage or education. Nothing about this family is unusual; the multiple only looks big because the method adds the parts the shorthand leaves out.

The gap, read honestly

Read the gap the right way and it is a working list, not an answer. The $2,000,000of income assumes twenty years at today's level, with no growth and no inflation, and the $240,000 assumes $120,000 per child in today's dollars. Both are placeholders a family should revisit; neither is a prediction. And the 3.5 percent of the need already covered is small not because the household is under-insured by some fixed standard, but because the $50,000 of existing cover and $40,000 of savings are a small fraction of a $2,550,000 need. The engine's job is to add the parts in a way you can read back and argue with - not to tell anyone how cheaply they can get away with dying.

Where these numbers come from

• The DIME method. The income replacement, debts, education, final expenses, gross need, resources and the resulting gap all follow the same DIME calculation the Life Insurance Calculator runs, on the same inputs.
• The multiple follows from the same four parts. The gap expressed as a multiple of income, here 24.6, is derived from the four named parts, not chosen as a round number.
• The inputs are the family's, not the calculator's. Income-replacement years, each child's expected education cost and the debts are figures a household supplies; the calculation only adds and subtracts them.

What this guide does not cover

This page computes the DIME need; it does not price the policies, and it does not decide between term and whole life. That choice turns on a premium quote and a coverage horizon - a whole-life policy is bought for a lifetime and builds cash value, a term policy for a fixed span and a lower price - and this engine has no opinion on it. It also leaves income-replacement amounts in today's dollars without inflation, does not model a second income, taxes, or benefits that end, and treats the gap as a number a family should revisit rather than a once-for-all answer. Its only assertion is that the need is a sum of named parts, and that the shorthand "times income" is the shortcut, not the arithmetic.

Build your own household's need in the Life Insurance Calculator, or compare a term policy with a whole-life one in the Term vs Whole Life Insurance Calculator.

An estimate of cover needs - not investment, underwriting, tax or financial advice. Read the full disclaimer.