How to Use the DIME Method for a Family With Two Children

Written by Hannah McCullough Insurance Researcher & Writer

If you want a quick next step after doing the math, you can see your estimated rate in minutes. Keep the result beside your budget and the term length you need; an estimate is a starting point for a coverage conversation, not a carrier offer.

What does the DIME method tell a family with two children?

The DIME formula uses four labels: debt, income, mortgage and education. In this article, it is a simple worksheet, not a coverage rule. It makes the family’s choices visible so each assumption can be changed without pretending the result is a policy recommendation. Each label hides a separate decision, and the DIME method explained in full covers the details this worksheet only sketches.

For this example, assume two parents, two children ages 5 and 8, one parent earning $60,000, a $220,000 mortgage, $15,000 in other debt, and $200,000 of savings already set aside for long-term goals. The survivor may choose a different target; the point is to make each assumption visible.

How does the worked DIME calculation reach $750,000?

This DIME calculation adds $600,000 for ten years of income, $220,000 for the mortgage, $15,000 for other debt, $15,000 for final expenses and $100,000 for education. That is $950,000 before offsets. Subtracting $200,000 of savings that the family has deliberately reserved for these goals leaves a $750,000 starting target. Funeral costs are what the final-expense line represents, and it helps to see how the DIME method treats them.

How should a parent choose the income-replacement period?

Income replacement is usually the largest line in the example, so it deserves a separate decision. Start with the amount the household would actually lose after the insured parent dies. If the household expects another confirmed source of income or expects childcare costs to change, the gap may be smaller than gross salary.

Then choose the years the replacement is meant to cover. Ten years is only an illustration. A family may use a shorter period until the younger child reaches a certain age, or a longer period if one parent’s earnings support essential housing and care costs. Write down the reason for the period so it can be revisited after a move, raise, new child or payoff. Some families instead compare the human life value method, which converts the income a worker would have provided into a figure in today’s dollars.

Should the mortgage and education goals be included in full?

Mortgage and education are choices, not automatic add-ons. Including the remaining mortgage can give a survivor the option to eliminate a large monthly obligation. Funding college can be a separate goal: some families choose a fixed dollar amount per child, while others decide basic household stability comes first.

The NAIC notes that life insurance can help address significant debt and money a parent wants to set aside for children’s education. Its consumer guidance is a helpful reminder to review the question when income and needs change, rather than treating one calculation as permanent.

What should be subtracted from a DIME total?

Subtract only assets and coverage that would realistically be available for the listed goals. That can include dedicated savings, an existing individual policy, or a benefit the family has confirmed will continue. Do not automatically count a retirement account, a house or any benefit if using it would disrupt the survivor’s plan.

It also helps to distinguish the death benefit from investment return assumptions. The IRS says that life insurance proceeds paid to a beneficiary because of the insured person’s death are generally not included in gross income; exceptions and interest on delayed proceeds can matter, so a tax professional can address a family’s particular situation.

How can this family turn $750,000 into a practical coverage choice?

A $750,000 target is a planning result, not a command to buy that exact amount. Next, compare it with the household’s cash flow, current coverage and the years the children are likely to depend on the parent’s income. A parent might choose a term that matches the years of the heaviest mortgage and childcare responsibility, then review it when circumstances change. If you want to test these inputs quickly, a DIME calculator can be a starting point, though the result depends on the figures you enter.

Bring a one-page worksheet to a licensed life insurance agent: income used, replacement years, balances, education goal, offsets and the reason for each. That makes it easier to test whether the coverage amount and term still fit the real family budget without implying approval or a particular premium.

What are the common mistakes in a DIME estimate?

The first mistake is multiplying salary by a number without checking what expenses would actually remain. The second is counting the same asset twice, such as subtracting college savings and also assuming it will cover general living costs. The third is forgetting the second parent’s coverage need. In a two-income household, each parent can require a different calculation because each income, childcare role and debt responsibility may differ.

Finally, do not let a round number replace a review. The NAIC encourages consumers to revisit life insurance as income and needs change. A refinance, new job, new baby, divorce, major debt payoff or a change in savings can all change the four inputs.

What is the next step after the DIME worksheet?

Save the assumptions and revisit them with the other parent before shopping. If the example suggests you may need coverage, you can see your estimated rate in minutes and then decide whether speaking with a licensed life insurance agent would help you compare the amount and term to your household plan.