Life Insurance Calculator
Estimate how much life insurance coverage you need based on your income, debts, dependants and existing savings.
Written by Rahman · Last reviewed
Quick answer
Replacing $75,000 of income for 20 years, plus a $220,000 mortgage, $20,000 of other debts and four years of education at $15,000 a year for two children, comes to $1,860,000, less $30,000 of existing savings, so about $1,830,000 of cover. That's the DIME method: Debt, Income, Mortgage, Education, minus what you already have. It tells you how much cover you need, not which policy to buy, and it says nothing about what that cover should cost.
The DIME method: Debt, Income, Mortgage and Education, less the savings and assets your family already has. Education multiplies the annual cost per child by the number of children and the years you want to fund, so 2 children at 15,000 a year for 4 years comes to 120,000. Figures are in today's money and are not discounted for inflation or investment growth on the payout.
Results are estimates for general guidance and are not financial, tax or legal advice. Except where a calculator names a currency, figures carry no currency of their own: put in pounds and you get pounds back, put in rupees and you get rupees. Figures depend on the assumptions you enter and on rates that change over time. Check current rates and speak to a qualified adviser before acting on them.
About the Life Insurance Calculator
Life insurance replaces your income if you die, ensuring your dependants can pay the mortgage, debts, daily expenses and future costs like college tuition. The central question is: how much cover do you actually need? Too little leaves your family exposed; too much wastes money on premiums.
This calculator uses the DIME method (Debt, Income replacement, Mortgage and Education) to estimate the lump sum your policy should provide, adjusted for existing savings that can contribute toward those needs.
Cover needed = (Income × years) + total debts + mortgage balance + (dependants × annual child cost × years of education) − existing savings
"Years" is how long your income needs to be replaced, often until your youngest child is financially independent or your partner reaches retirement.
Term and whole life are different products
Almost all of the price difference in life insurance comes from one choice, and you make it before any of the numbers on this page come into play. Term insurance covers a fixed period (commonly 10, 20 or 30 years) and pays out only if you die within it. Whole life, universal life and their variants cover you for life and build a cash value you can borrow against, which is why the same amount of cover costs several times more.
The case for term is that the need is usually temporary. The mortgage gets paid down, the children grow up and become independent, and retirement savings build. Cover that lasts 20 years is cover for the years when your death would leave someone else in real financial trouble.
- Term: lowest cost per unit of cover, no cash value, and the premium jumps sharply if you renew at the end of the term at an older age.
- Whole and universal life: permanent cover with a savings component, materially higher premiums, and returns that are usually modest once the insurance charges inside the policy are accounted for.
- Group cover through an employer: cheap or free, but typically capped at one or two times salary and lost when you change jobs.
The DIME figure above is a quantity of cover, not a product recommendation. The same sum insured can be bought either way, at very different prices.
A lump sum is not the same as an income
This calculator gives you a single payment, but what that payment has to replace is an income spread over many years. Turning one into the other changes how big the figure needs to be, and not in your favour.
A $500,000 payout invested at a 4% return and drawn down evenly supports about $36,800 a year for 20 years, and then it's gone. That's simply how the drawdown works out, and it already assumes the money is invested rather than sitting in cash.
- Inflation erodes the tail. At 2.5% a year, that final $36,800 payment has the purchasing power of roughly $22,500 in today's money.
- Returns are not guaranteed. A poor sequence of returns in the first few years of drawdown permanently reduces what the remaining balance can support.
- Tax treatment varies by country and by policy. In some jurisdictions the payout itself is tax-free but the investment returns on it are not.
That's why the common "10 times income" shorthand exists ($600,000 on a $60,000 salary), and also why it's only a shorthand. It roughly stands in for an income-replacement calculation without saying what return, inflation or length of time it assumes.
Frequently Asked Questions
Term or whole life insurance?
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Term insurance covers a fixed period (10, 20, 30 years) at much lower cost. Whole life builds cash value but costs 5–15× more in premiums. Most financial planners recommend term cover plus separate investing for the premium difference.
Does my employer's group life policy count as existing cover?
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It can count as partial cover, but employer policies typically lapse when you leave. If you need long-term cover, a personal policy is more reliable.
Should I include my mortgage in the debt figure?
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Yes. Your mortgage balance is the single largest debt most families carry. If you have separate mortgage protection insurance, you can subtract that from the mortgage balance.
How often should I recalculate?
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After every major life event: marriage, birth of a child, buying a home, a significant salary change, or paying off a large debt.