How Much Life Insurance Do You Need? The DIME Method

What DIME stands for

DIME turns a vague question into four specific ones, then subtracts what you already have. It is a needs analysis rather than a rule of thumb, which is exactly why it disagrees with the multiple rule so often.

D is for Debt. Everything you owe apart from the mortgage, plus final expenses. Credit cards, car loans, student loans, and the cost of a funeral and settling an estate.

I is for Income. Your annual income multiplied by the number of years your family would need it. Ten years is the conventional default.

M is for Mortgage. The full outstanding balance, so the family can stay in the home without a payment.

E is for Education. A per-child figure multiplied by the number of children.

Add the four, subtract existing coverage and liquid assets, and what remains is the gap.

A worked example

Priya earns $85,000. She owes $25,000 on a car loan, carries a $380,000 mortgage and has two children. She budgets $15,000 for final expenses and wants ten years of income replaced.

The 10x rule would have suggested $850,000 of gross coverage, or $600,000 after the same offsets. That figure leaves the mortgage and the children's education entirely unfunded. The two methods differ by nearly half a million dollars for the same household.

You can run your own numbers in the life insurance calculator, which shows both the DIME result and the income multiple side by side.

Where the education figure comes from

Statistics Canada put average undergraduate tuition for Canadian full-time students at $7,734 for the 2025/2026 academic year. Four years of that is roughly $31,000 in tuition alone, before residence, food or books.

Costs vary widely by province. Newfoundland and Labrador is the least expensive at about $3,746, while New Brunswick, Saskatchewan and Nova Scotia all approach $10,000 a year.

If you already have an RESP, subtract it. It is money earmarked for exactly this purpose, and it carries the 20% Canada Education Savings Grant on top, so it does more work than its balance suggests.

Choosing the years of income

Ten years is conventional and arbitrary. Two better anchors exist.

The first is how long until your youngest child is independent. For a family with a two-year-old, ten years stops the income replacement when the child is twelve, which is not obviously the right place to stop.

The second is how long until your spouse could support the household alone. That might be shorter than the first, or considerably longer.

Use whichever is longer. The premium difference between ten and twenty years of income replacement is usually smaller than people assume, because term life insurance is priced per thousand dollars of coverage and the marginal cost of more coverage is low.

Two things DIME gets wrong

It ignores investment returns. A lump sum meant to replace ten years of income would earn something while being spent, so DIME overshoots that component.

It ignores inflation. Over a ten or twenty year replacement period, a fixed sum buys progressively less, which pushes in the opposite direction.

In practice the two errors partly cancel, and that is a large part of why the method has lasted: it is roughly right without requiring assumptions nobody can defend.

Its genuine blind spot is different. A stay-at-home parent scores zero under DIME, because there is no income to replace. That is plainly wrong: someone providing full-time childcare produces substantial economic value, and replacing that care costs real money. Price what it would cost for the years it would be needed and add it to the income component deliberately.

Do not build the plan on group coverage

Employer life insurance is worth counting and worth being cautious about. It usually ends when the job does, it is often capped at one or two times salary, and it is rarely portable.

The failure mode is specific: a job loss and a coverage loss arrive on the same day, often at an age when replacing the coverage costs considerably more than it would have earlier.

Subtract it in the calculation, then ask whether the plan still holds if that number went to zero. If it does not, the gap is worth covering with an individual policy that you own.

DIME sizes the need, not the product

Once you have the number, a separate question follows: term or permanent?

For most families with children and a mortgage, the need is large and temporary. It peaks when the children are young and the mortgage is big, and it shrinks as both resolve. That shape is exactly what term insurance is designed and priced for.

Permanent insurance solves different problems: a lifelong dependant, a large capital gain waiting at death on a cottage or a private company, or a business succession to fund. Those needs do not expire, so coverage that does is the wrong tool.

The mistake to avoid is buying permanent coverage for a temporary need. Because it costs several times more per dollar, the buyer often ends up taking far less coverage than they need, which is the worst of both outcomes.

Life insurance is not the only gap

DIME answers what happens if you die. For most working Canadians the more probable risk is not dying but being unable to work, and that gap is usually larger and less often covered.

Disability insurance replaces a portion of your income while you cannot work. Group coverage exists but often ends with the job, tightens its definition of disability after two years, and is taxable when the employer pays the premium.

Critical illness insurance pays a tax-free lump sum on a covered diagnosis, covering the costs provincial health care does not: drugs taken outside hospital, travel to treatment, and a spouse taking unpaid leave.

Child life insurance sits well below all of the above in priority. It is worth a small amount for final expenses and parental time off work, and worth checking your group benefits first, since most Canadian plans already include dependent coverage at no cost.

Calculate Your Number

Enter your debts, income, mortgage, children and existing coverage. The calculator shows the DIME breakdown component by component, the coverage gap, and how the answer compares to the 10x income rule.