❤️ Life Insurance
💡 Ideas
How to calculate income replacement when determining how much life insurance you need
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Scott Karstens
Founder & CEO · Licensed since 2001
Published May 20, 2026
⏱️ 1 min read
Our Tool Does This Automatically
Our income replacement solution handles this calculation for you — including the investment earnings component — and gives you a clear, precise number. No math required.
Method 1: The Income Multiplier
The simplest approach is to multiply your annual income by a factor — typically 10 times your annual income as a starting point.
- Annual income: $60,000
- × 10 years of income replacement
- = $600,000 income replacement need
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Why 10x?
10x your income assumes no investment returns on the death benefit. In practice, the lump sum can be invested — which means you may need somewhat less than 10x. The DIME method accounts for this.
Method 2: Present Value of Income (The More Precise Approach)
A more precise calculation considers how long your income needs to be replaced and what rate of return the death benefit could earn if invested:
- Annual income needed: $60,000
- Years of replacement desired: 20 years
- Assumed investment return: 4%
- Present value of that income stream: approximately $815,000
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Our Tool Does This Automatically
Our income replacement solution handles this calculation for you — including the investment earnings component — and gives you a clear, precise number. No math required.
What Time Horizon Should You Choose?
Your time horizon depends on your family’s situation:
- Until youngest child finishes college — typically 18–22 years from now
- Until spouse reaches retirement age — when Social Security and retirement savings kick in
- Until the mortgage is paid off — when major housing expenses disappear
- For life — if you want permanent income replacement for a non-working spouse
Questions? Email us at info@quote-bot.com
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