Determining Coverage Needs

Choosing a life insurance policy without knowing how much coverage you need is like driving without a destination. Whether you’re protecting your family, paying off debt, or planning your legacy, getting the right number is critical. Here’s how to determine exactly how much coverage is enough—without overpaying.

Step 1: Start with the DIME Method

The DIME formula is a powerful tool to estimate your life insurance needs. It stands for:

• Debt: Include mortgage, car loans, credit cards, and personal loans

• Income: Multiply your annual income by the number of years your family would need support

• Mortgage: Remaining balance on your home loan

• Education: Future education costs for your children

Example:
If you earn $75,000 per year and want to cover 10 years, plus a $250,000 mortgage and $100,000 for education, your total coverage need is $1.1 million.

Step 2: Consider Your Unique Life Stage

Young Singles:
Focus on covering debts and burial costs. A small policy might be enough.

Families with Children:
Your income replacement, mortgage, and education funds are top priorities. Term life with $500,000–$1M+ is often appropriate.

Empty Nesters:
Shift toward legacy goals or final expense coverage. You may not need as much, but permanent coverage can help transfer wealth tax-free.

Step 3: Factor in Existing Assets and Insurance

Do you already have:

• A group policy through work?

• Retirement accounts?

• Real estate or savings?

Subtract these from your total coverage need to avoid over-insuring.

Example:
If your total estimated need is $800,000 and you have $200,000 in savings, you need a policy worth approximately $600,000.

Step 4: Adjust for Inflation and Lifestyle

• Add a buffer for inflation, especially if buying a long-term policy

• Consider your family’s current lifestyle and expected expenses

• Think long-term: how will your spouse or kids manage financially in 10–20 years?

Step 5: Don’t Guess—Run the Numbers

Using online calculators is a good start, but speaking to a licensed agent gives you a personalized plan tailored to your life, goals, and budget.

Final Thought: It’s Better to Slightly Overestimate

Underinsuring by $100K could leave your family in a bind. Overinsuring slightly gives them peace of mind and flexibility when they need it most.

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