Life Insurance Calculator

The calculator uses a needs-based approach often called DIME, for Debt, Income, Mortgage and Education. The Insurance Information Institute describes the same logic: focus on final expenses, debts and income needs, then subtract your survivors' financial resources from their financial needs to determine how much coverage to buy.

Needs. The total needs figure is the sum of your mortgage balance, your other debts, the annual income to replace multiplied by the number of years, your children's education costs and your final expenses. The NAIC lists these same questions, including setting aside money for children's education and how your family will pay final expenses and repay debts. Final expenses cover funeral costs, taxes and the administrative costs of winding up an estate.

Resources. Your existing savings and investments and any life insurance you already hold (individual or through an employer) are subtracted from total needs. The result is never shown below zero: if your resources meet or exceed your needs, the estimate is $0.

What it leaves out. The income figure is a simple multiplication: it does not adjust for inflation or for investment returns on the payout. It also does not include Social Security survivors' benefits, which the Insurance Information Institute notes can be substantial; if you know what your family would receive, you can reduce the income to replace accordingly. No tax is added on top of the estimate because, per the IRS, life insurance proceeds received as a beneficiary are generally not included in gross income, although interest paid on them is taxable.

Income multiples. The NAIC notes that some insurance experts suggest five to eight times your current income, but that going through your actual needs gives a more accurate amount. This calculator follows the needs-based route.