How Much Life Insurance Do You Need, If Any?

Before buying a policy, consider all sources of income for your children if you were to die while they still needed financial support. Those sources might include:

• the property you leave behind
• Social Security survivors benefits, and
• grandparents or other family members.

Keep in mind that if you are wealthy or have affluent relatives who would step forward to take care of your children, you may not need life insurance. Or, if you're like most folks and are struggling to pay for your car's brake job or your kid's braces, you can't afford to (and shouldn't) divert much of your current income to cope with the fairly remote possibility that you may die prematurely.

What Type of Life Insurance Should You Buy?

Avoid expensive cash value life insurance (whole life, universal life, and variable life) policies that offer a lump-sum payment after a certain period of time (20 or 30 years, for example) or after you reach a certain age (often 65). This lump-sum payment is sold as a long-term savings/investment feature and it does nothing to affect how much money will be available to your child if you die in the next few years.

If you're reasonably young and reasonably healthy, consider purchasing a moderate amount of term insurance, which is the cheapest form of life insurance. Younger parents can obtain a significant amount of coverage for relatively low cost, for the obvious reason that statistically they are unlikely to die soon, so the risk to the insurance company is low. It will provide quick cash for your children if necessary, without draining your bank account now.