Life insurance begins with a deeply human question: If you were no longer here, what would the people you love need in order to keep moving forward?
For many people, the first instinct is to choose a number that simply feels right. Perhaps it sounds substantial enough. Perhaps it is based on a multiple of income. Perhaps it reflects what was recommended years ago, during a very different season of life.
But when you begin to look more closely at the life that number is intended to protect, the conversation often changes.
What would you want to make possible for the people you love? Would staying in the family home matter deeply to you? How important is education? Is there a partner whose life or career might need to change? Are there family members who depend on you in ways that are not immediately visible on a financial statement? Are there business responsibilities, caregiving commitments or other parts of your life that reflect what you value?
A number can look reasonable on paper and still feel disconnected from the life you actually envision.
This is where the DIME method can offer a thoughtful starting point.
DIME stands for Debt, Income, Mortgage and Education. Rather than beginning and ending with a single multiple of income, it invites you to look more closely at what your coverage may actually need to support.
Importantly, the purpose of the calculation is not simply to arrive at a life insurance number. It is to begin understanding the size and nature of the need you may be trying to protect.
From there, you can look at what you have already put in place and consider how those resources fit within the wider strategy for your family, your responsibilities and the life you want to protect.
DIME is still an estimate, and it is not a substitute for personalized advice. But it can help you move from a number that feels right toward a clearer understanding of what that number represents.
One way to begin is to look at where you are today.
D: Debt, excluding your mortgage
Begin by looking at the debts that could remain if something happened to you.
Depending on your circumstances, this may include:
- Credit card debt
- Car loans
- Student loans
- Personal loans
- Outstanding medical expenses
- Final expenses
- Costs associated with settling your estate
The exercise is not simply about adding liabilities together. It is also about considering what you would want the people you love to carry, and what you would prefer not to leave for them to navigate.
Which financial obligations could still need to be met? Which of those obligations would you want insurance proceeds available to help address?
These questions begin to connect the calculation to something more meaningful: the kind of support and stability you would hope to leave behind.
I: Income that may need to be replaced
Next, consider the role your income plays in the life you share with the people who depend on you.
The DIME method generally looks at after tax annual income and considers how many years some or all of that income may need to be replaced.
There is judgment involved here because income does much more than pay expenses. It supports the rhythms, responsibilities and possibilities of everyday life.
For a family with children, one reference point may be the years until the youngest child completes their education. For a couple, another may be the period until a surviving partner reaches a different stage of their own financial life. If a surviving partner has their own income and would expect to continue working, the amount being considered may be your contribution to household income rather than the household’s entire income.
This is also where your values can begin to shape the conversation.
Would you want your partner to have the flexibility to work differently for a period of time? Would remaining in the same community be important? Are there experiences, educational opportunities or family commitments you would hope could continue?
The important question is less about finding a universal number and more about understanding the role your income currently plays, and what you would want it to continue making possible.
M: Mortgage
For the mortgage portion of DIME, the starting point is generally the outstanding mortgage balance rather than the amount originally borrowed.
Again, the number is only part of the story.
For some families, keeping the home may represent continuity and stability during an already significant period of change. For others, paying off the mortgage may not be the priority. What matters is understanding what you would want and how that intention relates to the rest of the calculation.
There is also an important technical consideration. If your calculation assumes that insurance proceeds would pay off the mortgage in full while also replacing income that currently includes the mortgage payment, the same housing expense may effectively be counted twice.
One approach may be to consider paying off the mortgage and adjusting the income replacement amount accordingly. Another may be to leave the mortgage within the household’s ongoing expenses and account for it through income replacement.
The appropriate approach will depend on your circumstances, which is one reason the calculation is better viewed as the beginning of the conversation rather than the final answer.
E: Education
If helping children with future education costs is important to you, those expenses can also form part of the calculation.
The DIME method uses current education costs as a reference point, multiplied by the number of years you would like to provide for each child. You can then consider amounts that have already been set aside in 529 plans or other education accounts.
There is a values conversation here too.
For some families, education may mean helping with college tuition. For others, it may include graduate school, vocational training or simply creating more choice for a child as they begin their adult life.
There is no single vision that belongs to every family.
The question is what matters to yours.
Again, this is an estimate. Education costs can change, as can your family’s intentions and circumstances. A figure calculated today is something to revisit as life evolves.
Bring the full picture into view
Once the four DIME categories have helped you see the potential need more clearly, the next question is not simply, “How much insurance should I buy?” It is, “What have I already put in place, and how does it fit?” This distinction matters.
The DIME calculation helps you begin seeing what may need to be protected. The next step is to bring the resources you already have into the picture and understand what role each one may play.
This may include existing life insurance coverage and liquid assets that your family would realistically expect to use.
Employer provided life insurance may also form part of that picture, but it is worth understanding the terms of the specific coverage. Group coverage is generally connected to employment, and options available when employment ends can vary by plan.
Knowing what you have, who owns it and under what circumstances it remains in force can be just as important as knowing the headline coverage amount.
The purpose is to begin bringing the pieces together. What part of the potential need is already supported? Where could there be overlap? Where might there still be a shortfall? And how do the resources you have already put in place fit within the wider protection strategy for your life and family?
What remains after considering the resources already available may help identify an estimated shortfall.
That figure is another starting point for a conversation with your advisor and qualified insurance professional. It is not an insurance quote or a recommendation to purchase a particular amount or type of coverage.
See what the number is really holding
Once you have a number, we believe there is value in asking another question:
What is that number actually made of?
A life insurance calculation can become much more meaningful when each part of it is connected to a person, responsibility, intention or season of life.
Some of the needs you are planning for may have a natural end point. A mortgage can eventually be repaid. Education costs may end. The need to replace a portion of income may change as children become independent or a surviving partner moves into a different season of life.
Other responsibilities may continue for much longer.
A family may be planning for the ongoing care of a dependent with a disability. A business or property may form a significant part of an estate. There may be estate expenses or other considerations where assets are not readily available as cash.
This is why we believe there is value in moving beyond the question, “How much life insurance do I need?”
The deeper conversation may be:
What am I hoping this coverage will protect, preserve or make possible for the people I love?
Understanding the nature and expected duration of each need can help inform a wider conversation with your advisor and qualified insurance professionals about the types of coverage that may be appropriate.
The coverage amount is only part of the conversation
There is another layer of life insurance planning that deserves just as much attention: where the proceeds are intended to go.
Beneficiary designations are particularly important because life insurance proceeds are generally distributed according to the beneficiary designation associated with the policy rather than through the terms of a will.
This makes it worth periodically reviewing both your primary and contingent beneficiaries and confirming that the information on file still reflects your wishes.
Life changes.
Families grow. Relationships change. Children become adults. Estate plans are updated. A policy that was established years ago may still carry instructions made during a very different season of life.
Clarity here is an act of care.
It is one more way of making sure that what you have put in place remains aligned with the people and intentions behind it.
When the people you are protecting are still young
Naming a minor child directly as a life insurance beneficiary can create additional legal considerations because minors generally cannot receive insurance proceeds directly.
Depending on the circumstances and applicable law, a court supervised arrangement may be required to manage those proceeds until the child reaches the relevant age.
A trust may be one option considered as part of a wider estate plan, but decisions about how assets should be held or distributed for a child should be made with a qualified estate planning attorney.
The intention is not simply to leave something behind.
It is to consider how what you leave behind may be managed for the people you love.
That distinction matters because thoughtful planning asks us to consider not only what we provide, but how those resources may support the life and people we care about.
Does the structure still reflect your intentions?
Policy ownership can also matter.
Where the policy owner, insured person and beneficiary are different people, there may be tax or estate planning considerations depending on the structure and individual circumstances. Similarly, the ownership of life insurance may have implications for larger estates.
These areas can become complex quickly, and tax and estate laws can change.
Rather than making assumptions, we encourage clients to coordinate these decisions with their qualified tax, legal and insurance professionals.
A thoughtful insurance review can begin with a few questions
If you are reviewing your life insurance, the DIME framework may help you organize the conversation.
But before reaching for a calculator, it may help to begin with the life behind the numbers.
Consider:
- What would you want the people you love to be able to continue doing if you were no longer here?
- What would you hope could remain steady for them?
- Which responsibilities would you want to help remove from their shoulders?
- What debts and final expenses would need to be considered?
- How much of your income supports the people who depend on you, and for how long might that support be needed?
- What is the current mortgage balance?
- What education expenses would you like to help provide for?
- What insurance coverage and liquid resources are already available?
- What role is each of those existing resources intended to play?
- Which needs are already supported, and where might there still be a shortfall?
- Which needs are temporary, and which may continue for much longer?
- Who are the primary and contingent beneficiaries currently listed on each policy?
- Have family, financial or estate planning circumstances changed since those designations were made?
- Are there minor beneficiaries or ownership arrangements that should be reviewed with your attorney or tax professional?
- A calculation can help you organize the pieces. Your values help give those pieces meaning.
And the calculation itself is only the beginning.
First, understand the potential need. Then look at what you have already put in place. From there, consider how those pieces work together and what, if anything, may still deserve attention.
Protection within the wider picture of your life
At Amida, we look at insurance as one part of a much wider conversation about protection, intention and the life you are creating.
When life is going well, there can be a natural desire to protect what matters. Your home. Your family. Your business. Your ability to support the people you love.
And sometimes the most useful part of the process is discovering that the number you once chose no longer reflects the life you have today.
Perhaps your family has grown. Your responsibilities have changed. Your business has evolved. Your vision of the future feels different. Or perhaps you simply understand more clearly now what you value and what you would want to preserve.
This is why we believe a life insurance calculation should not stand alone.
It can help you begin seeing the need more clearly. A thoughtful review then asks what you have already done, what those resources are intended to support and how they fit within the wider strategy for your life.
You do not have to carry every detail of that responsibility alone.
A thoughtful review can help you understand what is already in place, where there may be questions worth exploring, and whether your coverage still reflects your life today.
If this conversation resonates with you, we invite you to schedule a call with us to begin reviewing how your protection strategy fits within the wider picture of your wealth being™.
The first step is easy… connect with us.
