HOW MUCH DO YOU NEED?
The most important part of getting life insurance is choosing the right amount to cover all of your needs. That’s what we’ll be discussing on this page.
There are many different ways to get to the correct amount, but the one that I like is called the “DIME” approach. DIME in this case is short for: Death, Income, Mortgage, and Education. These are the four major expense categories that your family may have to deal with in the event of your death. Let’s take a look at each of the four categories:
- Death – This is really “Final Expenses”, and it’s meant to cover Funeral Expenses. In 2013, a typical funeral will cost between $10,000 and $20,000, unless you want to get really extravagant
- Income – This is meant to provide for replacement of your income in the event of your death. Here’s the key question for you to answer is this: “If you passed away tomorrow, how much of your income would your family still need, and for how long?” Common guidelines are between 2 and 10 times your net income, but if you and your spouse just had triplets you might need more than that. On the other hand, if your spouse is the principal wage earner, you might need little or nothing in this category.
- Mortgage – This is really “Mortgage and Other Debts”. This is meant to pay off the house and other debt (auto loans, credit cards, private student loans, etc.) in the event of your death. Simply put, “what is the remaining balance on your home mortgage?” Keep in mind that if you want your mortgage paid off in the event of your death, then that will reduce the money needed for Income, since your heirs won’t need to cover a mortgage payment. Regarding the “other debt” you need to pay that off if you intend to leave anything to your heirs. If it’s not paid off, your creditors will hold up the distribution of your estate and the courts will pay your creditors before anything goes to your family.
- Education – How much money do you want available for college education for your family? In 2013, state university costs roughly $80,000, and private universities cost $175,000 or more, and college costs have been rising much faster than inflation. If your children are young, college costs will be a staggering amount by the time they’re ready to attend. You can find an excellent estimator for college costs at http://www.finaid.org/calculators/costprojector.phtml
Here’s a nice simple form based on the DIME approach that you can use to figure out your insurance needs: http://www.perzelagency.com/wp-content/uploads/2013/07/DIME-Life-Needs-Analysis.pdf
Bill Martino, CLU, ChFC, CASL
If you want to get a quick analysis of your needs, fill in the boxes below and click on the “Calculate” button. The “Sub-Total” and “Total Net Need” fields are calculated by the page. You can run this as many times as you want, and anytime you change one of the input values, the Sub-Total and Total Net Need fields are emptied until you press the Calculate button again.
If you would like more information, just scroll down a little bit, fill in the form fields, and click the Submit button.
If you have a specific question or problem that you’d like to discuss, describe it in the “Comments” section, and we’ll try to have the answer ready when we contact you.