Life Insurance: how to calculate the right sum insured

Almost no one buys life insurance thinking about themselves — you buy thinking about who would be left with the debt, the mortgage and the goals if you weren't there tomorrow. And yet, most people buy a random sum insured, the 'a million sounds fine' kind. Here's a fast, practical, realistic method to size yours.

The DIME method (Debt, Income, Milestones, Education)

• D: total debt today (mortgage, cards, loans, car).
• I: your net annual income times the number of years your family would need to reorganize (typically 5 to 10).
• M: family milestones (emergency fund, funeral costs, adjustments).
• E: estimated cost of your children's future education.

Add the four. Subtract your savings and liquid assets. That's your floor.

Worked example

Carlos, 38, married, two kids (ages 5 and 8). Net income: MXN 60,000/month = 720,000/year.

• D — Debt: mortgage 1,200,000 + car 180,000 + cards 90,000 = 1,470,000.
• I — Income: 720,000 × 7 years = 5,040,000.
• M — Milestones and final costs: 300,000.
• E — Education for two kids through college (conservative): 1,600,000.
• Total: 8,410,000. Savings and liquidity: 500,000. Target sum insured: ≈ 7,900,000 pesos.

Quick rule when you have no time

If you need a number in a minute, use 5 to 10 times your gross annual income — lean toward 10× if you have young kids or an active mortgage, and toward 5× if you're close to retirement with no debt.

Which plan fits your profile

• Privilegio (term): high protection at the lowest cost while your earning stage or mortgage lasts.
• Trasciende (whole life): lifelong protection with accumulated cash value.
• Dotal (endowment): mixes protection with guaranteed savings at 10, 15 or 20 years.
• Proyecta Afecto: retirement focus with tax deductibility up to ~MXN 152,000 a year (LISR Art. 185).

Common mistakes

• Insuring only the primary earner and ignoring the caregiver.
• Not reviewing the sum every 3–5 years: Mexico's cumulative inflation over recent years exceeds 25% (INEGI).
• Confusing the bank's mortgage life insurance with your personal protection: the bank's covers the debt, not your family.

FAQ about life insurance

What is life insurance for?

So that your family receives a tax-free lump sum (LISR Art. 93) if you pass, and to cover debt, funeral costs, children's education and the income that would stop entering the household. In endowment or retirement plans (like Proyecta Afecto), it also acts as a savings vehicle with a tax benefit.

Is life insurance tax-deductible in Mexico?

Traditional life insurance (Privilegio, Trasciende) is not deductible on its own. Retirement plans like Proyecta Afecto are, under LISR Art. 185, capped at roughly MXN 152,000 per year or 10% of taxable income, whichever is lower. The tax certificate is issued by the insurer at year-end.

Whom should I name as beneficiary?

The people who actually depend on you financially: spouse, children, parents if you support them. You can name several beneficiaries with specific percentages, and it's wise to include a contingent beneficiary. Never leave it blank — with no designated beneficiary the payout goes through succession and can take years.

What to do now

Take 15 minutes and fill in the DIME exercise with your real numbers. If the result feels uncomfortably high, that's a good sign: it means you're finally looking at what your family actually needs, not at what sounds nice.