The DIME framework
DIME stands for Debt, Income, Mortgage and Education — the four obligations a policy typically needs to cover. It is more reliable than the common "ten times income" rule because it starts from what your family would actually have to pay rather than a multiple that ignores your circumstances entirely.
How long should income be replaced?
Until your youngest dependant is financially independent is the usual answer, though a surviving spouse who would need time out of the workforce may need longer. The number of years matters more than any other input: replacing $85,000 for ten years versus twenty is a $850,000 difference in required cover.
Why term is usually right
Term insurance covers a defined period at a fixed premium and pays only on death within that period. Because the vast majority of term policies never pay out, they are cheap — a healthy 35-year-old can often obtain $750,000 of 20-year level term for less than the cost of a monthly phone plan. Permanent policies cost several times more for the same face value because part of the premium funds a cash value account.
Structuring the term
Match the term to the obligation: 20 years if your youngest is a toddler, 15 if they are in primary school. Laddering — two policies of different lengths — lets cover step down as obligations fall, saving premium. Buying young locks in a low rate, and rates rise steeply with age and any change in health.
Practical points that affect the price
- Health at application is the dominant factor. Apply before conditions develop, not after.
- Tobacco use can double or triple the premium; most insurers require 12 months clear to requalify.
- Level term keeps the premium fixed. Annual renewable term looks cheaper initially and rises every year.
- Riders worth considering: waiver of premium on disability, and a conversion option to permanent cover without new underwriting.
Get the beneficiary details right
Name contingent beneficiaries as well as primary ones, and review after every major life event. For minor children, proceeds should generally be directed to a trust rather than paid to the child directly — otherwise a court may control the money until they reach majority.