If something were to happen to you, who do you leave behind? How do they replace your income and maintain the lifestyle they’re accustomed to?
This is what term life insurance is for, and it is less expensive than you think.
One of the most common questions I get about life insurance is, “How much do I need?”
This article will explain how I answer that.
DIME: My Simple Method
An easy way to remember this formula is the DIME method:
- D — Debts: Add up your outstanding debts.
- I — Income: Multiply your annual income by 10.
- M — Mortgage: Add the amount needed to pay off your mortgage.
- E — Expenses: Add any additional expenses you want your life insurance to cover, such as your children’s education.
In short: Debts + 10× Income + Mortgage + additional Expenses = an estimated amount of life insurance coverage.
Example Case Scenario
A couple with one child; they are both 35 years old, non-smokers in excellent health. They have a house, some school loans, and a car payment.
- $15,000 in Debt
- Each makes $50,000 a year in income
- Their mortgage is $250,000
- They want to set aside $35,000 for a college fund if something were to happen to them (other Expenses)
The math is $15,000 + (10 x $50,000) + $250,000 + $35,000 = $800,000 in coverage for each.
I would suggest they first consider a 20-year, $800,000 term life insurance policy, which would cost approximately $32 per month for him and $27 per month for her. If they wanted to lock in their rates for 30 years, the premiums would be about $61 per month for him and $50 per month for her.
I’ve seen people pay similar premiums for just $100,000 of coverage simply because the agent they worked with was limited to one insurance carrier. That’s one of the advantages of working with an independent agent: you can compare options from multiple carriers to find the right coverage at a competitive price.
RELATED ARTICLE: Why Use an Independent Agent?
Factors
In addition to the amount of coverage you’re applying for, your life insurance premium is based on several factors, including your age, the length of the term, gender, tobacco use, and answers to health-related questions. Each insurance carrier has its own underwriting guidelines and pricing, so rates can vary significantly from one company to another. When I run a quote, I compare options from 45 insurance carriers to help find the best combination of coverage, price, and product.
That’s the quick way to determine your needs. To get a personalized life insurance quote, please give me a call at 615-478-7146 or grab a spot on my calendar.
*This is an example of a real case I worked on for clients in Tennessee. Your situation will be different, determined by the factors I mentioned.
