What Is Coverage Amount? Definition

Why it matters

Too little leaves gaps, and too much raises the cost. A needs analysis or the DIME method can help choose a number. Many final expense buyers choose a coverage amount near funeral costs plus small debts. Agents ask about assets and existing coverage first. Review the number again after a major life change such as a new child, a new loan, or a retirement.

Source: iii.org

Where we use this term

Related terms

Face Amount: The face amount is the dollar amount of coverage stated on the policy. It is the base death benefit the carrier agrees to pay, before any loans, riders, or reductions.
Needs Analysis: A needs analysis is a review of a family's finances to find how much life insurance is needed. It looks at debts, income, expenses, assets, and goals.
DIME Method (DIME): The DIME method is a simple way to estimate coverage by adding Debt, Income, Mortgage, and Education costs. The total is a starting point for the coverage amount.
Income Replacement: Income replacement is the goal of buying life insurance to replace the earnings a family would lose if the insured died. It is often a multiple of annual income.
Death Benefit: A death benefit is the money a life insurance carrier pays to the beneficiary when the insured dies. It is usually paid as a lump sum and is generally income tax free to the beneficiary.

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Why it matters

Where we use this term

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