Term Life Insurance: The Straight Math on How Much Coverage You Need
Most people are underinsured by $500,000 or more. Here is the formula for calculating exactly how much term life insurance you need — and how to buy it without overpaying.
Term life insurance is the simplest, most affordable way to protect your family's financial future. But most people either buy too little (underinsured) or the wrong term length. Here is the straight math.
The DIME Formula
DIME stands for Debt, Income, Mortgage, Education. Add up: all debts (except mortgage), 10-12 times your annual income, your remaining mortgage balance, and estimated education costs for your children. That is your coverage target.
How Long a Term to Buy
The term should cover your period of financial vulnerability. If you have young children, a 20-30 year term ensures coverage until they are independent. If your primary concern is mortgage protection, match the term to your mortgage length. If you are close to retirement, a 10-15 year term may be sufficient.
Level vs Decreasing Term
Level term insurance keeps the same death benefit throughout the term. Decreasing term (mortgage protection insurance) reduces the death benefit over time. Level term is almost always the better choice — the death benefit stays constant even as your mortgage balance decreases.
What It Costs
A healthy 35-year-old can get $1,000,000 of 20-year term life insurance for $30-$40/month. A healthy 45-year-old pays $60-$80/month for the same coverage. Premiums increase significantly with age — buy as early as possible.
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