Life insurance is an important component of a sound financial strategy. If you have too little, your family may not be able to have a reasonable standard of living if you were to pass away unexpectedly. If you have too much, you could be sacrificing something you may also need. Right-size your coverage and use the cash you save to reduce debt, build an emergency fund or prepare for a better future.
The DIME Method* is a way to determine how much life insurance you need:
– Insurance in Place
* The DIME Method is only one method to help determine your insurable need. There are many variables that affect your life insurance needs. You may need more or less insurance depending needs. You may need more or less insurance depending on any existing savings, assets, retirement funds and whether the purpose of the death benefit is to replace income or for estate planning purposes.
** Anticipated college costs
But that simple calculation doesn’t capture other variables that can affect your life insurance needs.
Here’s another approach:
1. Think about your family’s future and assign a dollar amount to each of these items:
- Your long-term and/or short-term debt: _____
- Your long-term goals (for example, projected costs for your children’s education): _____
- The insured’s annual income times the number of years it will be needed: _____
- The amount you want to set aside for funeral costs and/or emergency funds: _____
2. Add up the numbers above
3. Now, think about your existing assets, such as savings or real estate, and subtract them from those costs
The number you get provides a better starting point to determine your actual life insurance needs.
Your next step: Meet with an experienced life insurance professional for a thorough evaluation of your needs and guidance on which type of insurance is appropriate for you.