Educational information, not individual financial advice.
Key Takeaways
Coverage needs vary enormously across households. A 28-year-old single software developer with no dependents has very different needs from a 42-year-old parent of three with a stay-at-home spouse. The same analytical framework applies; the inputs and outputs differ dramatically.
DIME is a shortcut that captures most people's major categories:
D — Debts outstanding. Credit cards, student loans, personal loans. Not mortgage (covered separately).
I — Income replacement. Years × annual income needed by survivors to maintain their lifestyle.
M — Mortgage balance. The remaining principal on your primary residence, sometimes plus second homes.
E — Education costs. Projected college costs for each child.
Sum them up. That's your starting coverage.
Example:
An alternative: calculate the present value of your expected future earnings until retirement.
For a 35-year-old earning $80,000 expected to retire at 65 (30 years of earnings), the raw total is $2.4M. Discounted at 3%, the present value is about $1.6M. Adjusted for consumption (only some of your income benefits survivors), it's often reduced 20–30%.
Human life value gives a sense of the upper bound — your full economic value to survivors.
For a more rigorous answer, build up line-by-line:
Immediate needs:
Ongoing income replacement:
Goal funding:
Subtract existing resources:
The result is your net life insurance need.
Often overlooked: surviving children receive Social Security benefits until 18 (or 19 if in school), and a surviving spouse caring for those children receives benefits until the youngest turns 16 ("mother's/father's benefit").
A surviving spouse caring for two young children of a deceased wage earner with typical PIA of $3,000/month could receive:
Total family benefit is capped at around 150–180% of PIA. Over 10–15 years, Social Security can cover $300,000–$500,000 of income replacement, meaningfully reducing the required life insurance.
Don't forget to insure the non-wage-earning spouse. If a stay-at-home parent dies, the survivor faces substantial childcare, household management, and possibly career disruption costs.
Estimates of a stay-at-home parent's economic contribution run $150,000–$250,000/year in replacement services. Coverage of $500,000–$1,000,000 on a stay-at-home spouse is often appropriate, especially during the years of young children.
Young single, no dependents: minimal or no coverage needed. Some employer basic life insurance is enough.
Married, no kids: modest coverage if your spouse depends on your income. $100k–$500k may be sufficient, especially if both work.
Parents of young children: peak coverage need. $1M–$2M is common for middle-income households; $3M+ for higher earners.
Parents of older children: needs decreasing. The income replacement period is shorter; education may be partially funded.
Empty nesters: further decreasing. Focus shifts to retirement spousal protection.
Retired: life insurance often unnecessary. Assets alone cover survivors.
Wealthy estate planning: permanent insurance in ILIT for estate tax liquidity.
Signs of under-insurance:
Signs of over-insurance:
Review annually, especially after major life events.
The Insurance page in Horizons calculates your estimated life insurance need using your actual profile — income, dependents, assets, debts — and compares it to your current coverage. You see where you are relative to industry rules of thumb and where the gaps are largest.
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