Rhode Island life insurance needs calculator

What DIME adds up

DIME is an acronym with a subtraction on the end. Debt, Income, Mortgage, Education. You total the four, take off the money already set aside, and the remainder is the face amount to shop for.

The subtraction is everything you already hold against those needs: savings, taxable investments, retirement accounts you are willing to see spent, and any policy you own outright.

What DIME does not do is discount future income to present value. A dollar your household needs in year fourteen is counted here as a full dollar, even though a lump sum paid today and invested sensibly would produce that dollar from considerably less. That single omission is why the method runs generous, and it is deliberate. The alternative is a full needs analysis, which requires somebody looking at your entire balance sheet, your tax position and your spending, and no web form has any of that.

So read the output as a ceiling with a clear derivation rather than a recommendation. It is the number you can defend line by line, which is a different and more useful thing than a number that claims precision it has not earned.

The worked example, at the default inputs

The calculator opens on a $75,000 income to be replaced for 15 years, a $240,000 mortgage, $18,000 of other debt, $100,000 of education, $15,000 of funeral and final costs, and $60,000 of savings and existing cover.

• Income replacement: $75,000 multiplied by 15 years is $1,125,000.
• Mortgage: $240,000, the balance outstanding.
• Education: $100,000.
• Debts and final costs: $18,000 plus $15,000 is $33,000.

That is a gross need of $1,498,000. Subtract the $60,000 already held and the tool reports $1,438,000 of cover to buy, which it also expresses as 19.2 times income because a multiple is easier to sanity-check than a seven-figure sum.

Compare that with the ten-times-income rule of thumb, which on this income would suggest $750,000. The gap is $688,000, and almost all of it is the mortgage plus the fact that fifteen years of undiscounted income is a very large number. Neither figure is wrong. They are answers to different questions, and DIME is answering the more specific one.

A second example: changing the years

The years field is the single biggest lever on this page, so it is worth moving on its own.

Take the years of income to replace from 15 down to 10, and income replacement falls to $750,000. Gross need becomes $1,123,000, and after the same $60,000 subtraction the answer is $1,063,000, or 14.2 times income. Five years of the field is worth $375,000 of cover.

Push it the other way, from 15 to 20, and income replacement rises to $1,500,000. The answer becomes $1,813,000, or 24.2 times income.

The honest way to choose the number is not to pick a round figure. It is to work out how long your household actually needs the income: usually until the youngest child is independent, sometimes until a surviving partner reaches an age where retirement savings take over. A household whose youngest child is two and whose mortgage has twenty-two years left is looking at a longer figure than a household whose children have left and whose mortgage is nearly clear.

Why is the answer so much larger than the rule of thumb?

Because it counts four needs separately instead of assuming one multiple covers all of them, and because it does not discount.

A rule of thumb has to be wrong in both directions to be usable at all. Ten times income is far too little for a household with a large mortgage and two young children, and considerably too much for a household with no debt, no dependants and a paid-off home. DIME replaces the guess with an itemised list you can argue with.

The lack of discounting is the other half of the answer. If the payout is invested rather than left in a checking account, it earns a return while it is being drawn down, so a smaller sum sustains the same income. Working that through properly is a present-value calculation, and it typically cuts the income component meaningfully. Cutting the other way is inflation, which raises the cost of the income being replaced over the same period. The two partly cancel, and this tool models neither, which is exactly what its first caveat says. Our investing section covers how a lump sum behaves once it is drawn down over years rather than spent.

The non-earning parent problem

Enter zero in the income field for a parent who does not work outside the home, and the calculation returns a small answer and a multiple of income it cannot compute at all.

That answer is wrong in a way worth stating plainly. On the default household with the income set to zero, gross need falls to $373,000 and the tool reports $313,000 of cover: mortgage, debts, education and final costs only. But the household would still have to buy childcare, transport, cooking and household management that were previously provided for free, and that cost is real and often substantial.

The workable approach is to enter the market cost of replacing that work as the income figure. Put $35,000 a year into the income field, keep the fifteen years, and the answer moves to $838,000. Whether $35,000 is the right figure is a local question, and the way to settle it is to price full-time childcare and after-school care in your own area rather than to accept a national average. Our cost of living pages are a starting point for what those services cost where you live.

Term or whole life

Most households need term life, which pays a fixed amount if you die inside a fixed period and pays nothing otherwise. That sounds like a poor deal and is not: the cover exists precisely for the years when the mortgage is large and the children are dependent, and it is cheap because most policies never pay out.

Whole life and its relatives bundle insurance with an investment inside one product. For the same face amount the premium is several times higher, and the difference funds a cash value. There are households for whom that structure genuinely fits, usually ones with estate or business-continuity problems that a plain policy cannot solve. For a household trying to make sure the mortgage is paid and the children are raised if a parent dies, the cover per dollar of premium is what matters, and term wins that comparison by a wide margin.

If you are weighing the premium against other uses of the same money, run it through the savings and investing tools before you decide, rather than after.

Common mistakes with a life insurance calculation

• Counting employer cover as though you own it. Group life through work usually ends when the job does, and it typically cannot be converted at anything like the same price. If you add $150,000 of employer cover into the savings field on the default household, the answer drops from $1,438,000 to $1,288,000. That is $150,000 of protection that disappears the week you change employers.
• Entering the original mortgage rather than the balance. The M in DIME is what is still owed. Using the purchase price overstates the need by everything you have already repaid, and on a loan halfway through its term that is a large error. The mortgage tools will give you the current balance if your statement is not to hand.
• Insuring one earner and not the other. A two-income household loses income whichever parent dies. Run the calculation twice, once for each.
• Entering zero income for a non-earning parent. Covered above. It understates the need by the entire cost of replacing that work.
• Treating the retirement account as available. Money in a 401(k) is countable in the savings field only if the survivor would genuinely spend it on these needs rather than on retirement. Counting it twice is the most common way a household ends up underinsured on paper and worse in practice.
• Buying the number without shopping it. The face amount is the output. The premium for that face amount varies substantially between insurers for the same applicant and the same health class.

What should you check before you buy?

• Confirm the mortgage figure is the outstanding balance from your latest statement
• Price the cover for both adults, including a non-earning parent
• Ask whether the term runs at least until your youngest child is independent
• Check whether the policy is convertible, and until what age
• Get the premium quoted at more than one face amount, so you can see the price of each extra $250,000
• Confirm what employer cover you hold and what happens to it when you leave
• Name and date the beneficiaries, and check them again after any marriage, divorce or birth

The last one is not a detail. A policy pays whoever is named on it, and the named person is frequently somebody the policyholder stopped intending to benefit years earlier. No calculator can catch that.

What this calculator does not do

Stated plainly, because the gaps matter more than the arithmetic:

• It does not discount to present value. Every future dollar is counted as a whole dollar. This is the largest single reason the figure runs high.
• It does not model investment growth on the payout, which would let a smaller sum replace the same income, and it does not model inflation, which cuts the other way.
• It does not price the policy. Premiums depend on age, health, tobacco use, occupation and the insurer, and none of those are inputs here.
• It does not know your survivor benefits. Social Security survivor benefits, employer death benefits and pension survivor options all reduce the gap and none appear on this page.
• It does not consider tax or estate structure. Death benefits are generally received free of federal income tax, but estate treatment and ownership structure are separate questions with real consequences.
• It cannot tell you whether you can afford the premium. That is a budgeting question, and the answer sometimes is to buy less cover for longer rather than more cover you will cancel in year three.

State insurance departments regulate carriers and handle complaints, and a state guaranty association stands behind policies if an insurer fails, within limits that vary by state. Both are worth knowing about before you compare two unfamiliar names on price alone. See our state pages for the regulator in your jurisdiction and our methodology for how we treat figures we cannot verify.

This page explains a widely used convention. It is not a recommendation to buy any particular amount or type of cover, and it is not personalised advice. See the disclaimer.