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Although you may not be able to get an exact amount of life insurance you will need, you can make an estimate to understand how much you will need. The best way to do this is to add up your life-long financial assets and subtract your total assets. That leftover amount is how much life insurance you will need to fulfill your financial stability. To help you better determine this amount, check out our methods for calculating how much life insurance you will need below.

## Three Methods of Calculating Your Life Insurance Needs

#### Method 1: Multiply your total income by 10.

Marvin Feldman, CEO and president of Life Happens, an insurance industry group, reports that the “10 times income” rule isn’t necessarily a bad rule, but plays poorly on the economy’s current state and often feels outdated. Not only does the rule not count in what the average family requires or takes into account a savings or life insurance policy, but it doesn’t include coverage for stay-at-home parents.

Feldman assures that both parents need to be fully insured. Due to this, the total coverage by the stay-at-home parent can be replaced if they pass away.

#### Method 2: Purchase 10 times your income, with an additional \$100,000 per child in your household for school expenses.

If you have kids or plan on having kids, adding in education expenses such as school are an important factor to add into your life insurance calculation. This method adds multiple layers to the “10 times income” rule but doesn’t affect any insurance coverage you already have.

#### Method 3: The DIME formula

The DIME formula represents debt, income, mortgage, and education, the four critical areas that you should count into calculating your life insurance. However, let’s break it down even further:

Debt: Add up any debts you have, excluding your mortgage, including funeral expenses.

Income: Predict how long your family needs support and multiply that by your annual income.

Mortgage: Add up the total amount you will need to pay off your mortgage.

Education: Determine the cost of sending your kids to school, including college.

## How To Determine Your Ideal Number

In order to figure out your perfect amount of coverage, try using this simple formula: any financial obligations minus your liquid assets.

First, calculate your obligations. Add together your debts, mortgage balances, annual salary for each year you want to be covered, your funeral costs, and other future large purchases like college tuition. If you are a stay at home parent, you should include costs needed to cover the services you provide like child care and housecleaning.

Then, take that number and subtract any liquid assets you have. This includes your savings, college funds, and other life insurance policies.

## 5 Tips For Calculating Your Coverage Needs

1. Don’t skimp out on coverage. Your income, expenses, and the cost of living, in general, will likely increase over the years. Since you cannot anticipate how much these will increase by, you would be better off buying a little more life insurance than you need instead of less. This will help provide a bit of a cushion for your spouse and children.
2. Plan for your life insurance as part of your overall financial plan, not as an isolated thing. Your overall plan should include future expenses and the potential growth of your assets and income. Once you have gathered this info, you can determine how much coverage you need.
3. Include your spouse in the conversation. After all, they will be the one who will use the money. Ask them how much they think the family will need to continue on without you. Also, ask them to check over your estimates.
4. If your children are young, choose a 30-year term over a 20-year term. When you pick a longer term, you most likely will not need to shop for life insurance again when you are old and the interest rates are higher.
5. You might also want to consider buying a few small life insurance policies instead of one large one. This will vary your coverage as your needs change. You can actually reduce your costs this way and ensure there will be enough to cover necessary times.