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The D.I.M.E Method

Crystal Barrow

Every family will have a different life insurance need.   The “DIME” method was created as a starting point to help people calculate their life insurance needs.  DIME is an acronym for Debt/Death,  Income,  Mortgage and Education. 

What is your life insurance need?

Use the DIME formula as a starting point in calculating your life insurance needs.

D = Debt/Death.

  • In the event that something were to happen to you and you were to die tomorrow, how much debt would you leave behind? If you and your family are not independently wealthy nor have life insurance, all of that debt gets passed on to your family. It is important to take into account the amount of debt that would need to be covered when evaluating life insurance need.  You will also want to include funeral expenses in that debt figure. For example, let’s say you have $20,000 in student loans, $20,000 in credit card debt and you’re budgeting $10,000 for your funeral. Your total debt would be $50,000.

I = Income.

  • Your life insurance policy would need to provide enough income for your family to maintain its same standard of living until the youngest child reaches the age of 18. For example, let’s assume that your youngest child will be graduating in 10 years.  You would multiply your yearly salary let’s say $48,000 for 10 years,  you might consider a $480,000 policy.

M = Mortgage.

  • If you are still paying your mortgage, your life insurance policy should pay off the remaining balance of your mortgage loan. If you still owe $100,000 on your home you would add that amount to your debt and your income.

E = Education.

  • If you have children and plan on sending your children to college.  You should budget a minimum of $50,000 per child for a four-year university education at a state school (depending on the the location). Let’s say you have two children so that would mean that you would need a minimum of $100,000 for both children.  This takes into account the tuition fees, room and board and books. If you’re thinking of a private university or out-of-state school, get ready to pay a lot more. Financial aid and student loans help, but there is no guarantee of getting scholarships.  These loans can come with high interest rates.

Here is how it all adds up:

Debt: $50,000

Income: $480,000

Mortgage: $100,000

Education: $100,000

DIME = $730,000

According to the DIME formula, your recommended life insurance coverage is $730,000. Of course, each person’s needs are different, so just consider this as a starting point and customize your coverage as needed. Remember, some insurance is better than none at all.

We may not like to talk about death, but we all understand the importance of planning for the future of our loved ones. Life insurance gives peace of mind, for you and everyone who depends on you. Beyond providing financial security, life insurance can also be used as a tool to fund college tuition or retirement.

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