How much life insurance do you actually need? A Texas family's method

Ask five agents how much life insurance you need and you may get five multiples of your income. The multiples aren't wrong exactly — they're just a shortcut standing in for arithmetic nobody wants to do at the kitchen table. The arithmetic isn't hard, and doing it once gives you a number you can actually defend.

Start with DIME

DIME is an acronym for the four categories that make up most households' need: Debt, Income, Mortgage, and Education. You total those four, then subtract what's already in place.

D — Debt and final expenses

Every balance that would survive you: credit cards, auto loans, personal loans, student loans that aren't federally discharged at death, and any medical debt. Add final expenses on top. Funeral and burial costs vary considerably by region and by the arrangements a family chooses, and cremation, traditional burial, and memorial services differ substantially in price. Rather than use a national average, call two funeral homes in your city and ask for their general price list — they're required to provide one — and use those figures.

I — Income replacement

This is usually the largest component and the one people underestimate. Take your annual income and multiply it by the number of years your household would need it. The right number of years depends on what you're solving for. Until the youngest child finishes high school is one anchor. Until your spouse reaches their own retirement age is another. Ten years is a common compromise.

One nuance worth catching: if a stay-at-home parent dies, the surviving parent often faces new childcare, transportation, and household costs that didn't exist before. A non-earning parent has real economic value, and pricing coverage on them at zero is a mistake we see constantly.

M — Mortgage

Use the current payoff balance, not the original loan amount and not the home's value. If you're not sure, your servicer's statement shows it.

E — Education

If you intend to fund college for your children, estimate it here. Public in-state tuition, fees, and room and board differ a great deal from private tuition, and costs continue to rise, so build in a cushion. If college funding isn't part of your plan, put zero and move on — this framework works when it reflects your actual intentions, not someone else's.

Then subtract what already exists

From that total, subtract liquid savings you'd expect your family to use, any existing individual life insurance, and group coverage through work — with a caveat on that last one. Group life is commonly one or two times salary and typically ends when the job ends. Counting on it fully assumes you'll die while still employed there, which isn't a safe planning assumption.

Social Security survivor benefits may be available to a surviving spouse caring for young children and to the children themselves, subject to eligibility rules and family maximums. Those benefits are real but they are not a full income replacement, and eligibility depends on work history and circumstances. If you want an accurate figure for your household, the Social Security Administration's own statement and calculators are the source to use.

A worked example

A 36-year-old in San Antonio earning $78,000, married with two children aged 6 and 3:

• Debt and final expenses: $18,000 in auto and credit balances, plus $12,000 for final expenses — $30,000
• Income replacement: $78,000 × 15 years, until the youngest finishes high school — $1,170,000
• Mortgage payoff: $268,000
• Education: $80,000 for two children at in-state public rates — $80,000
• Subtotal: $1,548,000
• Less savings of $40,000 and $150,000 of group coverage — $1,358,000

Round that to a $1.4 million 20-year or 30-year term policy. For a healthy 36-year-old non-smoker, that coverage often costs less per month than a family's phone bill — though your actual premium depends entirely on your health history and the carrier's underwriting decision.

Three things that skew the number

Buying based on premium rather than need. Deciding you'll spend $50 a month and backing into whatever coverage that buys is how families end up underinsured by half. Calculate the need first, then decide what you can fund. If the full amount isn't affordable, buy what you can now and layer more later — a smaller policy in force beats a larger one you never bought.

Choosing a term that's too short. A 20-year term on a 30-year mortgage leaves a gap in your late fifties, exactly when new coverage costs the most and health issues are most likely to complicate approval.

Ignoring the conversion privilege. Many term policies allow conversion to permanent coverage without new medical underwriting. If your health changes during the term, that provision can be worth more than the premium difference between carriers. Its terms vary, so read them before you buy rather than after.

Run your own number

The calculator on our life insurance page runs this exact method. Bring the result to a conversation and we'll pressure-test the assumptions with you — free, and with no obligation to buy anything.