How much life insurance does the average person need?

There is no single number that works for everyone, but financial experts generally recommend coverage equal to 10 to 15 times your annual income as a starting point. For a household earning $75,000 per year, that translates to $750,000 to $1.125 million. However, the right amount depends on your specific debts, number of dependents, existing savings, and future obligations like college tuition. Using a needs-based method like DIME will give you a far more accurate figure than any rule of thumb.

Is $500,000 in life insurance enough?

It depends on your financial situation. For a single person with no dependents and minimal debt, $500,000 may be more than enough. For a family with two young children, a mortgage, and one primary earner making $80,000 per year, $500,000 would likely fall short — covering only about six years of income replacement with no buffer for education or debt. Most families with children and a mortgage need $1 million or more.

Do I need life insurance if I am single with no dependents?

If no one depends on your income, you may not need life insurance at all. That said, a single person might still consider a small policy to cover funeral costs, pay off co-signed debts, or lock in low rates while young and healthy in anticipation of future needs like marriage or children.

Should I count my employer life insurance toward my total coverage?

You can factor it in, but do not rely on it as your only coverage. Most employer plans offer one to two times your salary, which is rarely enough. More importantly, employer coverage is not portable — if you leave your job, you lose the policy. Think of it as a helpful supplement, not your primary protection.

How often should I reassess my life insurance coverage?

Review your coverage at least every two to three years or after any major life event — marriage, divorce, a new child, buying a home, a significant raise, starting a business, or paying off major debts. A policy that was right five years ago may be insufficient or excessive today.

Can I have more than one life insurance policy?

Yes, and many financial planners recommend it. A strategy called laddering involves purchasing multiple term policies with different lengths. For example, you might buy a $1 million 20-year policy for your mortgage and a $500,000 10-year policy until your children finish college. As each policy expires, your coverage decreases alongside your declining obligations, saving you money versus one large, long-term policy.

How Much Life Insurance Do You Need? DIME Method + Calculator (2026)

Why the Right Amount Matters

Life insurance is the most important financial safety net your family has if something happens to you. Yet according to LIMRA's 2025 Insurance Barometer Study, roughly 42 percent of American adults have no life insurance at all. Among those who do carry coverage, many are significantly underinsured.

LIMRA estimates the average coverage gap among underinsured households is approximately $200,000. That means if the primary earner died today, the surviving family would come up $200,000 short of what they need to maintain their standard of living, pay off debts, and fund their children's futures.

Too little coverage leaves your family vulnerable to financial hardship during an already devastating time. Too much wastes money on premiums that could go toward retirement savings or paying down debt. The goal is to land on a number that replaces lost income, eliminates debts, funds education, and gives your family the breathing room to adjust. This guide will walk you through how to calculate that number step by step.

Common Rules of Thumb

The 10x Income Rule

The most commonly cited shortcut says you need life insurance equal to 10 times your gross income. Earning $80,000 means $800,000 in coverage. It is easy to remember but ignores your debts, your spouse's income, savings, and the number and ages of your children. A single 28-year-old earning $80,000 has vastly different needs than a 38-year-old with a mortgage, two kids, and a stay-at-home spouse.

The Income-Plus-Obligations Rule

A more refined approach takes 10 times your income and adds your remaining mortgage balance, outstanding debts, and estimated college costs. This gets closer because it accounts for large liabilities that would not disappear when you do.

The DIME Method

DIME stands for Debt, Income, Mortgage, and Education. Instead of a single multiplier, it breaks your need into four categories, calculates each independently, and adds them together. The result is a personalized number based on your actual financial picture. Most financial planners recommend DIME as the best starting framework.

The DIME Method Explained

D — Debt

Add up every debt excluding your mortgage: credit cards, car loans, student loans, personal loans, and medical debt. Include estimated final expenses — funeral and burial costs average $7,000 to $12,000 according to the NAIC, plus medical bills and estate settlement. A reasonable final expense estimate is $15,000 to $25,000.

I — Income Replacement

This is typically the largest component. Multiply your annual income by the number of years your family would need support — at least 10 years, and up to 18 to 20 if you have a newborn. The goal is to bridge the gap until dependents can support themselves or your spouse reaches retirement.

M — Mortgage

Include the remaining balance on your mortgage so your family can stay in their home. If you rent, factor in several years of rent payments instead. Include any home equity loans or lines of credit as well.

E — Education

According to the College Board, the average annual cost of tuition, fees, and room and board is approximately $24,000 at a public university and over $56,000 at a private institution. That is roughly $96,000 to $224,000 per child for a four-year degree. If your children are young, factor in education inflation of 3 to 5 percent per year.

Add all four components together. The total is your estimated need before subtracting existing resources like savings, current policies, and other assets.

Step-by-Step Calculation: A Worked Example

Meet Sarah: 35 years old, earns $85,000 per year, two children ages 3 and 6, spouse works part-time earning $25,000.

Step 1: Debt

Car loan: $18,000
Student loans: $32,000
Credit cards: $5,000
Final expenses: $20,000

Total Debt: $75,000

Step 2: Income Replacement

Sarah's youngest child is 3 and will not be self-supporting for at least 15 years. Her family depends heavily on her salary. Her spouse's part-time income would likely go toward increased childcare costs if Sarah were no longer around.

Income replacement: $85,000 x 15 = $1,275,000

Step 3: Mortgage

Sarah and her spouse bought their home five years ago. Paying off the remaining balance would eliminate their largest monthly expense.

Mortgage balance: $280,000

Step 4: Education

Two children at roughly $96,000 each for four-year public university comes to $192,000. Sarah rounds to $200,000 to buffer for tuition inflation, offset slightly by her existing 529 contributions.

Education costs: $200,000

Step 5: Total It Up

Debt: $75,000
Income: $1,275,000
Mortgage: $280,000
Education: $200,000

Gross need: $1,830,000

Step 6: Subtract Existing Resources

Employer life insurance: -$50,000
Savings and investments: -$30,000
529 college savings: -$15,000

Net coverage need: $1,830,000 - $95,000 = $1,735,000

Rounding up to the nearest standard policy increment, Sarah should look for approximately $1.75 million to $2 million in life insurance coverage. Since her needs are primarily temporary — income replacement until the kids are grown and the mortgage is paid off — a 20-year term policy is the most cost-effective choice. At her age and assuming good health, a $2 million 20-year term policy would cost approximately $70 to $95 per month, providing substantial protection for roughly the price of a modest car payment.

Factors That Affect How Much You Need

Beyond the DIME framework, these factors can push your ideal coverage higher or lower:

Number and ages of dependents. More dependents and younger children mean a longer period of financial responsibility.
Spouse's earning potential. A full-time working spouse reduces how much income you need to replace. A non-working spouse increases it.
Total household debt. Car loans, student loans, credit cards, and business debts all add to your coverage need.
Existing savings and investments. Retirement accounts, brokerage accounts, and emergency funds reduce how much life insurance you need.
Employer-provided coverage. Factor it in but never rely on it exclusively — it disappears when you leave the company.
Social Security survivor benefits. Your surviving spouse and minor children may receive $2,000 to $3,500 per month, reducing the income your policy needs to replace.
Inflation. A dollar today buys less in 20 years. Consider adding 10 to 20 percent to your calculated need for long-term policies.

What Coverage Costs

According to LIMRA, more than half of Americans overestimate the cost of term life insurance by a factor of three or more. Here are approximate monthly premiums for a 20-year level term policy for a non-smoking individual in good health.

$500,000 Coverage — 20-Year Term

Age 25: approximately $18 to $25 per month
Age 30: approximately $20 to $30 per month
Age 35: approximately $25 to $38 per month
Age 40: approximately $38 to $55 per month
Age 45: approximately $60 to $85 per month
Age 50: approximately $95 to $140 per month

$1,000,000 Coverage — 20-Year Term

Age 25: approximately $30 to $42 per month
Age 30: approximately $35 to $50 per month
Age 35: approximately $45 to $65 per month
Age 40: approximately $65 to $95 per month
Age 45: approximately $100 to $150 per month
Age 50: approximately $170 to $250 per month

These are estimates based on industry averages and will vary based on your health, gender, lifestyle, and the specific insurer. Smokers typically pay two to three times more than non-smokers. The key takeaway is that even a $1 million policy is surprisingly affordable for most healthy adults under 45. The younger and healthier you are when you buy, the less you will pay — which is one of the strongest arguments for not putting off the purchase.

When You Need More Coverage

Certain situations call for coverage beyond a standard DIME calculation:

Single parent. Without a co-parent, your children rely entirely on your policy. Add extra to fund childcare at $10,000 to $20,000 per child per year.
Stay-at-home spouse. Replacing childcare, cooking, cleaning, and household management with paid help costs $30,000 to $60,000 per year. Both spouses need coverage.
Business owner. You may need a separate policy to fund buy-sell agreements, cover business debts, or cushion the company during a transition — on top of personal coverage.
Child with special needs. Lifelong support, specialized care, and housing can cost millions over a lifetime. Many families combine a large policy with a special needs trust.
Co-signed loans. Your death does not erase co-signed debt. The co-signer becomes fully responsible for the balance.
Supporting aging parents. If you cover your parents' medical costs, housing, or living expenses, include their ongoing needs in your calculation.

When You Need Less Coverage

Not everyone needs a million-dollar policy. You may need less — or none at all — if:

No dependents. If nobody relies on your income, a small policy for final expenses may be sufficient.
High-earning spouse. If your spouse can cover all household expenses independently, the income replacement component drops significantly.
Grown children. Once children are self-supporting, education and long-term income replacement needs essentially disappear.
Substantial savings. If your net worth is large enough for your family to live off existing assets, you may be effectively self-insured.
Approaching retirement. Fewer working years to replace means less income replacement coverage is needed.
Mortgage paid off. Eliminating your mortgage removes one of the largest components of most coverage calculations.

Reassessing Your Coverage Over Time

Life insurance is not a set-it-and-forget-it purchase. Review your coverage every two to three years and always after these seven life events:

Getting married or divorced. Marriage adds a dependent spouse; divorce may reduce needs, though alimony and child support can keep them high.
Having or adopting a child. Each child adds years of income replacement and education costs.
Buying a home or refinancing. A new or larger mortgage increases coverage needs; a significant paydown reduces them.
A significant income change. Higher income means a higher standard of living to replace.
Starting or selling a business. New ventures create obligations; a sale may generate wealth that reduces your need.
Paying off major debts. Eliminating your mortgage or student loans directly reduces your coverage need.
Children becoming financially independent. Education and extended income replacement needs drop to zero.

Common Mistakes When Calculating Coverage

Even careful planners make these errors. Here are the eight most common mistakes:

Using the 10x rule without adjusting. Two people earning the same salary can have wildly different needs based on debts, dependents, and spouse income.
Forgetting inflation. A $1 million policy has the purchasing power of roughly $670,000 in 20 years at 2 percent annual inflation.
Relying solely on employer coverage. Most employer policies offer one to two times salary, which is rarely enough — and you lose it when you leave.
Ignoring the stay-at-home parent. Replacing childcare, cooking, cleaning, and household management costs $30,000 to $60,000 per year. Both partners need coverage.
Underestimating education costs. College costs have outpaced general inflation for decades. Use projected future costs, not current prices, for young children.
Failing to subtract existing assets. Always deduct savings, retirement accounts, and existing policies from your gross need before buying.
Buying too short a term. A 10-year policy when your kids are toddlers can expire before they finish school. Match your term to the full duration of your obligations.
Procrastinating. Premiums increase roughly 8 to 10 percent per year of age. A policy costing $40 per month at 30 might cost $55 at 35 and $80 at 40 — and a health diagnosis could make coverage unavailable entirely.

The Bottom Line

Figuring out how much life insurance you need does not have to be overwhelming. The DIME method gives you a clear framework: add up your Debts, calculate Income replacement, include your Mortgage, and estimate Education costs. Subtract existing assets and you have a solid target.

For most families, the right amount falls between $500,000 and $2.5 million depending on income, debts, and dependents. That sounds large, but term life makes it affordable — a healthy 35-year-old can secure $1 million for roughly $45 to $65 per month, less than most cell phone plans.

The biggest risk is not buying too much or too little — it is putting off the decision. Nearly half of American adults have no life insurance, and the Federal Reserve's Survey of Consumer Finances consistently shows the median household is unprepared for losing a primary earner.

Run your own DIME calculation today. Get quotes from at least three insurers. Talk to a fee-only financial advisor if your situation is complex. The perfect amount of life insurance is the amount that lets your family keep their home, pay their bills, fund their futures, and grieve without financial panic. That number is within your reach, and the cost of getting it right is far less than most people think.

How Much Life Insurance Do You Need? A Step-by-Step Guide