Question 1

How is term life insurance coverage need calculated?

Accepted Answer

Three methods are used in the licensed industry — DIME (Debt + Income × years + Mortgage + Education), income multiplier (10–12× annual income, per LIMRA's industry rules of thumb), and Human Life Value (HLV — present value of expected future earnings to dependents, per Solomon S. Huebner's foundational 1927 framework). The three usually produce different numbers; the gap is the insight. This calculator computes all three side by side so you can see the spread and choose the figure your survivors can actually use, not the figure that maximizes a producer's commission.

Question 2

What is the DIME method?

Accepted Answer

DIME stands for Debt + Income (replacement years × annual income) + Mortgage + Education. It's the most common 'professional' rule-of-thumb used by financial planners. Strengths: covers concrete obligations; easy to explain. Weaknesses: ignores existing assets, surviving spouse's earnings capacity, and the time-value of replacement income. Best treated as a floor, not a target.

Question 3

Why does the 10× income rule-of-thumb keep showing up?

Accepted Answer

LIMRA's research and industry conventions consistently land on 10–12× annual income for primary breadwinners with dependents. The math behind it: 10 years of replacement income, undiscounted, with no other adjustments. It's a useful sanity check but a poor primary methodology — it ignores debt, mortgage, education funding, and existing savings. If your DIME number and your 10× number are within 20% of each other, the answer is probably right; if they diverge by 50%+, dig into why.

Question 4

What is Human Life Value (HLV)?

Accepted Answer

Human Life Value, formalized by Solomon S. Huebner in 'The Economics of Life Insurance' (1927), computes coverage need as the present value of the deceased's expected future earnings net of self-consumption. It is the most economically rigorous of the three methods and produces the highest numbers for younger high-earners with long earnings horizons. The discount rate matters enormously — small changes (4% → 5%) can move the answer by 15–20%.

Question 5

Are term life insurance death benefits taxable?

Accepted Answer

Generally no. Per IRC §101(a)(1), life insurance death benefits paid to a named beneficiary are excluded from the beneficiary's gross income — federal income tax does not apply. There are exceptions (transfer-for-value rule under §101(a)(2), employer-owned life insurance under §101(j), certain settlements). Estate tax is a separate question: if the deceased owned the policy at death, the death benefit is included in the gross estate (IRC §2042). Always verify with your CPA or estate attorney for amounts approaching estate-tax thresholds.

Question 6

How long should the term be?

Accepted Answer

Match the term to the longest financial obligation the policy is designed to cover. If your youngest child becomes financially independent in 18 years and your mortgage matures in 25 years, a 20-year term is the wrong choice — buy 25 or 30. The marginal annual cost of extending term is usually small compared to the catastrophic gap of being uninsured for the last 5 years of an obligation.

Question 7

Should I buy term or whole life?

Accepted Answer

For pure death-benefit need against a finite obligation (raise kids to independence, pay off the mortgage), term is almost always the right answer — the cost-per-dollar-of-coverage is 5–15× cheaper than whole life at the same age. Whole life makes sense in narrower scenarios: estate-tax liquidity, business buy-sell funding, or specific income-replacement strategies for permanent dependents. The carrier-side incentive to sell whole life is enormous because commissions are 5–10× higher; this is one of the few places in personal finance where the producer's commission and the consumer's interest are sharply mis-aligned.

Question 8

What is the difference between level term and decreasing term?

Accepted Answer

Level term keeps the death benefit flat across the term — what you bought is what your beneficiary receives at any point. Decreasing term steps down (often annually or in tiered drops) and is typically priced as 'mortgage protection' insurance. Level term is the operator-grade default; decreasing term sounds clever but rarely beats a comparable level-term policy on a $-of-coverage-per-$-of-premium basis once you account for the time-value of the locked-in coverage.

Term Life Insurance Coverage Need Calculator

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