How much coverage do I actually need?

Creative Director
Jan 23
3 min read

Updated: Sep 3

Figuring out “how much is enough?” doesn’t need a spreadsheet marathon. Here’s a simple guide to land on a smart Indexed Universal Life (IUL) death benefit for 2025 — so your family’s okay if life goes sideways, and you’re not overpaying.

Step 1) Start with a quick rule of thumb

A fast starting point is 10–15× your annual income (before tax). If you earn $80,000, that’s $800k–$1.2M in coverage. Some experts suggest even higher (e.g., 20×) if you want the benefit to generate income for decades. Use this as a starting number, not the final word.

Step 2) Sanity-check with the DIME method

Fine-tune your number by adding four buckets you actually care about:

D – Debt:

Credit cards, cars, personal loans (not including mortgage)

I – Income replacement:

Years your loved ones would need your paycheck (e.g., 5–10 years)

M – Mortgage:

Remaining balance

E – Education:

A realistic college fund per child

Add D + (I × years) + M + E and compare it to the rule-of-thumb result. Pick the higher figure.

The NAIC (state regulators) says the “right” amount depends on ongoing needs like income replacement, mortgage, and education—not a one-size-fits-all number.

Step 3) Make it IUL-smart (a couple IUL-specific tweaks)

Choose your death-benefit style:
- Level (Option A): stays level; typically the lower-cost death benefit.
- Increasing (Option B): rises with cash value; provides more protection later, costs more. If your top goal is a target number of protection at all times, Option B helps your coverage keep pace as cash value grows; if you want maximum efficiency on premiums, Option A is usually the go-to.
Know the IRS “corridor” rule (in plain English):
- For a policy to be treated as life insurance (and not a taxable investment), the death benefit must stay above the cash value by a set margin that changes with age. Translation: if you heavily fund an IUL for cash value, your minimum death benefit may need to increase. Your agent should set this correctly from day one.

Step 4) Pressure-test your number

Ask yourself:

If I weren’t here tomorrow, would this benefit cleanly cover debts + 5–10 years of living costs + the mortgage + college plans? If no, bump it up.
If markets are rough and your IUL credits 0% for a year, would the coverage amount still feel “enough”? (Charges still come out in flat years, so buy the benefit your family needs, not the “maybe someday” cash value.) (General IUL mechanics; see our IUL explainer.)
Any other goals? Caregiving for parents, special-needs planning, or leaving a charitable legacy? If yes, add a cushion.

A 3-minute example

Income $90,000 → rule of thumb: $900k–$1.35M.
DIME: debts $25k + income replacement ($90k × 8 years = $720k) + mortgage $300k + education $120k = $1.165M.

Pick the higher of the two approaches → around $1.2M.Prefer level death benefit to keep costs tight? Choose Option A. Want the coverage to grow as your cash value grows? Consider Option B.

Common questions

Is 10× income enough in 2025?

Often a solid floor, but childcare, a big mortgage, or college plans can push you higher.

What if I’m single with no dependents?

You may only need enough for final expenses and debts; the NAIC suggests basing it on who depends on you and what bills remain.

Why do people say ‘A-rated’ carriers?

AM Best’s A (Excellent) rating reflects strong ability to meet policy obligations—useful when you’re buying long-term protection like IUL.

How Fostered Insurance keeps this simple

Fostered Insurance — Independent Brokerage. We compare 63 A-rated life insurers — so you don’t have to. One application. Better value.

We translate your rule-of-thumb + DIME into a clear IUL design (Option A vs. B) that respects the IRS corridor rules—without you learning tax code.
We shop A-rated carriers so your long-term policy rests on strong financial footing.
You get side-by-side pricing and a plain-English summary of costs, riders, and flexibility.