A few weeks ago, I put out a call on Twitter and on Facebook for detailed posts that people would like to see. I got enough great responses that I’m going to fill the entire month of July – one post per day – addressing these ideas.

On Facebook, Andrea asks “What kind life insurance should you buy?”

The options available for life insurance are diverse and confusing. It’s certainly not helped by the fact that insurance salespeople are out there using sales pitches to convince people to buy their product, altering an important life decision into a carefully-crafted marketing brochure.

Life insurance choices
I’m going to describe several of the most common types of life insurance policies, followed by what I recommend among them.

Term Term life insurance policies offer a specified amount of life insurance protection for a specific fixed price. If you buy a term policy, you’ll typically buy a certain dollar amount of insurance over a certain number of years and for that you’ll pay a small amount each month, quarter, or year, depending on the policy. If the insured person dies in that time frame, you’re paid the insurance amount; otherwise, the contract simply ends at the end of the term.

Whole life Whole life insurance policies typically cost more than a term policy, but last for the entire life of the insured person. They often also build up a cash balance that can be borrowed against, but when you borrow against that balance, you reduce the death benefit by that much unless you pay back what you borrowed.

Universal There are a lot of variations under universal life plans. Universal plans are most similar to whole life plans, but also regularly offer options that enable the insured to add the value of their cash balance to the face value of the insurance. The investment portion of a universal plan is often tied to outside investments, meaning that it doesn’t grow at a steady rate like whole life cash values do.

Accidental death Accidental death policies are much like term policies, but only pay out under much more narrow circumstances. Such policies are often very inexpensive, but their restrictions greatly reduce the likelihood that the beneficiary will receive a payout.

My preferred choice
My preference is almost always a term policy. The only exception to this is if you have had a universal or whole life policy for a very long time so that there’s a large cash value already built up inside of it, which can be a useful asset and is often growing at a nice rate at that point.

Typically, the early returns on non-term policies are low enough that they aren’t a good investment initially. They’re effectively the same as paying significantly more for a term policy. This trend does not begin to reverse itself for a while.

If you’re buying a policy for your child, I’d still recommend a small term policy. There are some advantages to buying a whole life or universal policy for children, such as the guarantee of lifetime coverage no matter what may come and the potential to grow a large cash value over a long period, but this relies on the long term health of the insurance company and the reliability of your children to always pay their premiums. If you have money to spare, a universal or whole life policy is acceptable for children.

For adults, I would stick with a term policy and use the saved money to eliminate debts or save for retirement. This will put your money to work much more effectively.

A few weeks ago, I put out a call on Twitter and on Facebook for detailed posts that people would like to see. I got enough great responses that I’m going to fill the entire month of July – one post per day – addressing these ideas.

On Facebook, Elisabeth asked for information on “appealing health insurance denials of coverage.”

Health insurance companies don’t make money by paying for people’s medical bills (even though that’s why we hire them), so whenever there’s a case where they can see an easy way to deny it, they’ll do so. It makes sense for them as a business, even if it’s frustrating for us as people who need health care.

There’s a simple maxim to always follow when dealing with insurance companies, though: “the squeaky wheel gets the grease.” If it’s clear to them that you’re involved and have some idea of what you’re doing, you’re much more likely to get a resolution that you want.

Step 1: Know Your Situation
The first step is always to get all of your facts straight. You need to know some of the ins and outs of your health insurance plan as well as have thorough documentation of the care you received. Here are some questions to help you along that path.

+ What exactly is covered in your plan? What part of your plan matches up with the care you received?
+ Do you need a referral from your primary care physician for the type of care you received? Did you have that referral?
+ Is it required that the doctor you received care from be a member of the provider network covered by your policy?
+ Does your plan require prior authorization for the type of service you received? Did you get prior authorization from your insurance company (or did your doctor get it)?

Document all of these things with dates and as much information as you can gather. Have your facts straight before you even begin chasing down an appeal.

Step 2: Use Denials as a Clue, Not as a Stop Sign
If you’re denied, look for the reason for which the denial was issued. Your task is to cover that reason as clearly as possible – and you should acquire the needed information before you appeal. Depending on the reason for the denial, here are some steps you might want to take.

+ Ensure that your physician agrees that the procedure you were denied for was medically necessary, and get that in writing if at all possible.
+ If the insurer calls your procedure experimental, gather as much evidence in favor of it as you can.
+ If the insurer says that the procedure wasn’t explicitly covered, find evidence of similar procedures that are covered in your plan and ask your doctor for assistance in demonstrating the need for the procedure you had.

Step 3: Your Doctor Is Your Ally
A big theme you’ll see in the first two steps is that you’ll probably need some help from your doctor in this process, often in the form of documentation. Your doctor is going to be your ally here and you must keep that in mind through this process.

Be patient with your doctor. Don’t get angry with the doctor or the doctor’s staff. Do what you can to make it as easy as possible for them to help you with what you need. Honey works much better than vinegar in cases like this, so don’t give into your frustration and don’t get angry with your number one helper in this process (even if they seem uncooperative at times). The staff of many doctor’s offices are overburdened with requests, and one sure way to get your request overlooked is to act angry and self-righteous.

Step 4: Make an Appeal
Medical insurance companies have a formal appeals process which should be covered in your insurance documentation. Read through the documentation and understand it. It will be dry reading, I know, but the more you know about the process, the more likely it is that you’ll find success.

When you write your appeal, make all of the important details clear. Cover your health problems, particularly your full recent history with the problem in question. Discuss alternatives you’ve tried and exhausted. Mention what your physician recommended, particularly comments that counterbalance the reason your claim was denied. Outline why you were an ideal candidate for this procedure (which will probably take some research into the procedure). Discuss what will happen without the treatment.

You should also have supporting evidence. This is where research and time will come in handy. Quotes from your medical records are valuable. Direct quotes from your doctor are also valuable. Quotes from the insurance plan are incredibly valuable if they clearly support your case.

Provide as much documentation as you can for all of this evidence. Dates. Page numbers. Photocopies. You’re far better providing too much detail than not enough detail.

You should also keep a detailed log of all contact with the insurance company. Note what number you called, when you called it, who you spoke with, and what was discussed. You should also record all documentation you sent and when you sent it, as well as all mail you received from them. This may come in handy at a later time.

Most important, keep a full copy of every single piece of documentation that you send to the insurance company. Keep photocopies of the forms, of the records you sent them, and of every bit of your appeal. You may need these later on in the process. In fact, you should only be sending them copies of records and you should keep the originals for yourself.

Step 5: Get Free Assistance
Many states offer excellent help for people handling medical insurance denials through their state Department of Insurance. To find your state’s Department of Insurance, just use Google and type in “Department of Insurance” followed by your state.

Many states have a hotline you can call for assistance during this appeals process. Depending on the state, the information might be basic (providing simply information about the approximate timeline of the process) or it might be extensive (actually helping you with the appeal). They’re also equipped to handle any specific issues due to the state in which you reside.

In either case, it’s an assistance worth looking into if you find yourself in an appeal situation.

Another useful resource for insurance appeals is the Patient Advocate Foundation, which is another great resource for free assistance with medical appeals. You can simply fill out this form and assistance will contact you.

Step 6: Is a Lawyer Appropriate?
If your appeal is denied but you feel you’ve made a truly strong case, you may want to get legal help involved, particularly if the costs of the denial far outweigh the legal costs. Have a lawyer with experience in medical appeals review all of the documentation you’ve collected and determine if you have a case.

It is important to note that we all see our own situation through rose-colored glasses. A good lawyer will want to defend your rights and help you get the money you deserve, but if your case is weak, a good lawyer will say so. Remember, they’re financially ahead if they take on your case (particularly if they win), so if they’re telling you it’s not a good case, it probably isn’t.

In April 2010, my wife made the choice to step away from her job for the rest of the year in order to be a stay-at-home mom. She chose that period because she knew that she loved her job and that she would be itching to return after nine months.

Her employer made it possible for her to return to her previous position when her leave period ended, which was very gracious of them. Of course, that left us with a period of eight months without health insurance coverage if we did not pay out of pocket.

During that period, my income and our savings paid for our health insurance out of pocket. My wife was able to enjoy a period of staying at home with the children – and it was quite enjoyable for all of us. Our oldest child attended morning preschool and our three year old attended thrice-a-week morning preschool, but aside from that, the five of us were at home. My wife spent time with the kids and I split my time as best I could between work and spending time with all of them.

At the end of that period, my wife chose to return to work, not because we needed her income or her health insurance coverage, but because she missed the joy that she gets from her work.

During that period, the health insurance was a serious expense. If it were not for our living expenses being as low as reasonably possible and having a very healthy emergency fund, we would have really struggled to make this work. As it turned out, the reality of that period showed us that we could have done it for a few years, but my wife wanted to return to work at that point, making the question moot.

I often write about downgrading your job. Here’s the reality of making that choice with regards to health insurance.

1. Plan ahead for your health care needs. Where are you going to get health insurance from if you make a major career change? This needs to be one of the first things you think about, and it becomes more urgent the older you are.

2. A married couple only needs one person with insurance. Self-employment is much more difficult if you’re single because you don’t have a spouse’s insurance to rely on. It’s perhaps not fair (I don’t believe it is, but I don’t have a better idea that doesn’t involve a great deal of government interference), but it’s simply the fact of the situation. If you’re single, self-employment means that you have to come up with your own insurance. If you’re married, you can rely on your partner’s insurance (assuming they have them).

3. Never, ever burn bridges. When you make that leap, you may find that you wish to return to your previous career path if the new path doesn’t work out. Never, ever burn your bridges on the way out the door. Do everything you can to make the transition as smooth as possible and leave with good relationships with everyone. While this won’t mean you’ll get your old job back if things don’t work out, it does mean it’ll be easier for you to return to that career path if you need to. That’s a great hedge if you find out that health insurance isn’t working out.

4. COBRA can really be your friend. COBRA isn’t just G.I. Joe’s nemesis. It’s a federal law that, if you worked for an employer with more than 20 employees, ensures that if you quit your job, you can continue your current health insurance plan for up to eighteen months if you pay the premiums out of pocket. That can be incredibly valuable for a potential entrepreneur.

5. A healthy savings account is absolutely vital. Of course, the key is that you will have to pay premiums out of pocket under COBRA. That can be quite expensive, so the best route to take is to make sure you have enough money saved to cover that insurance for you and your family if you do downgrade your job. Know how much your total premiums actually are and plan for paying for that amount out of pocket.

Obviously, you can shop around for your own insurance and you may be able to find a better package than what you’re able to get through COBRA, but in either case, your savings is vital. It can make the difference between having health care insurance and not having it, and that can make the difference between success and failure.

6. SCHIP and Medicaid are also potentially vital. Both of these plans offer health insurance for low income folks, particularly children. I won’t get into the details of these programs, but if you see a major downward change in your employment coming in the future, you’ll want to know more about these plans.

The key, as always, is to be proactive. Such programs won’t magically appear on your doorstep. You have to be proactive and seek out such solutions. It might take a lot of phone calls, a lot of emails, and a lot of time to find out the details about such programs, but it’s far better to invest that time and effort now and ensure your coverage than to go without.

A final note on the future As I write this, the future of national health insurance in the United States is up in the air. While I am unsure about the specific provisions of the Patient Protection and Affordable Care Act (often termed “Obamacare”), I do think that some form of universal access to health care rather than the piecemeal system we have now would be very beneficial to everyone involved. It would allow entrepreneurs to jump into business plans that they might have otherwise avoided. It would also allow manufacturers to be competitive with overseas manufacturers who do not have to shoulder health care for their employees. While I’m not a politician who has to balance the beliefs and voices of a very wide political spectrum (and I’m glad of that), I do think that everyone – rich and poor – benefits if we work on finding a good solution to the health care problem rather than bickering and fighting and name-calling.

If you want to jump into self-employment or downgrade your job, let your congressperson know that you’re a potential entrepreneur in his/her district that would find starting a small business much easier if there was a palatable solution for health care that makes entrepreneurship easier and more accessible to everyone. There’s money to be made there for everyone involved – the entrepreneur and the health care provider.

This is a question I hear all the time from readers who are parents – and it’s a question that comes up in our own household as well. Should our children have life insurance policies?

I’ve done a lot of research and soul-searching on this topic. What follows are the conclusions I’ve come to on the issue. I hope these thoughts will help other parents make up their own minds on this difficult issue. I’m writing the things below with great care, because such concerns can be very, very emotional for parents (myself included).

The obvious and easy answer to the child life insurance question is no. Life insurance is usually purchased as either a salary replacement (so that a spouse or children aren’t left with an inability to maintain their standard of living) and/or a tool to pay for funeral expenses. In the case of a child, there is no salary to replace – and with the absence of a child, living expenses for the family actually drop, meaning it is possible for a family to cover funeral expenses.

Thus, from a straightforward analysis like this, life insurance for a child isn’t a strong financial choice.

But that’s not all there is to it.

The biggest issue is the possibility of illnesses developing late in childhood or in adulthood could prevent your child from being eligible for life insurance. I look at myself as an example of this. I was born with a highly underactive thyroid. My parents were able to get me a small life insurance policy as a child because they were very concerned with other illnesses springing up – and that policy still exists today.

There is also the smaller concern of the ability to pay for a child’s funeral and end-of-life expenses if that happens. For some families (ours included), there is adequate money in the emergency fund to pay such costs. For other familes, however, such funds aren’t easily available, for various reasons. That usually means debt.

There’s also the very small benefit that some policies function in a way that helps pay for college, but these are usually sub-par compared to a strong 529 college savings account. This is more of an “icing on the cake” type of thing rather than a primary feature.

What’s my conclusion? In the end, it comes down to your family’s financial state. If you’re in a good situation with a strong income, life insurance for your child can be a solid choice. However, it’s more important that your child receive other things first, such as steady nutrition, good health care, shelter, clean clothing, and perhaps other savings options for their future (like a well-funded 529).

In our case, we have small policies for each of our children, mostly for the “potential future illness” concerns stated above. My own concern about this may be somewhat inflated because of my own history, but it’s something Sarah and I both take seriously. It’s something we can easily afford and it’s something we know will have value for them no matter what happens in life. The insurance is not a strong bargain, but the monthly cost is very low.

If we were put into a choice between the insurance policy and other essential tools for caring for our children, the other areas would come first.

If you do decide to go the child insurance route, I strongly encourage you to shop around and take your time with the decision. Not all insurance houses are the same – there are big differences in price and coverage out there. I wouldn’t get a large policy, either – one that covers funeral expenses should be an adequate one. If you’re thinking about college, I’d suggest putting the rest of the money you might have spent on a policy into a 529 college savings account like the one we use at College Savings Iowa. That’s exactly what we’re doing.

Kelli writes in:

My husband and I are sitting on a thirty year mortgage (with twenty six years left to go). We still owe $330,000 on our home. A week ago, a very similar home to ours two blocks away sold for $220,000, so we’re under water by at least $100,000. We are thinking of just walking away from this mortgage and renting an apartment for a while until our credit clears up. What do you think?

First of all, there’s a strong personal moral element to this type of decision. Is it morally wrong to walk away from a mortgage? You’ll get strong, impassioned answers on both sides of the question. Some will argue that if you make an agreement with another entity, you’re obligated to stick to it to the best of your ability. Others will argue that banks know what they’re getting into with a mortgage and that foreclosure is a risk they accept in the agreement, so you’re just doing something within the bounds of the agreement.

As with most morality questions, I can’t tell you what to think. I personally feel walking away from your agreements when you have the capacity to fulfill them is morally wrong, akin to lying. If I were a lender, I would never lend to someone who walked away from a mortgage because I would simply view them as too big of a risk. But I’m not a mortgage lender.

Aside from that moral concern, though, is it really a good financial choice? I think it can be, but it depends on the other choices that the person makes.

First of all, walking away from a mortgage will drop your credit rating by 150 points and it will take several years to recover. Such a drop has a huge impact if your credit is good, but a much smaller impact if your credit is already bad.

What kind of impact? It will become incredibly difficult to get a car loan or another mortgage with any sort of competitive interest rate. Lenders will look at your credit score and if your score is low, they won’t offer you a prime loan (if they offer you one at all). You have to accept that you’ll either be paying for cars and homes in cash for the next several years or you’re going to be taking out loans with incredibly painful interest rates and down payments.

If you’re going to do this, your best approach is to make sure you have housing and automobiles lined out for the next several years before your credit collapses. If you’re going to get a mortgage on a second home, do it now and get a fixed rate mortgage while your credit is still good. If you’re going to rent, get your rental agreement set up now before you walk away. If you’re going to need a car in the next seven years, you might want to make the move now (unless you’ll have the cash to do it later).

Another impact is that many other services use your credit ratings to determine what to charge you and whether to do business with you. Insurance is one example of this – most insurance companies regularly do a “soft pull” of your credit and use declining credit as a reason to raise your rates. Many upscale renters will do the same thing and not rent to people with poor credit, which may limit the places where you can rent your housing. Potential employers often pull your credit (I’ve had two employers in the past do this) and use that as an element of their hiring decision, often leaning towards people with good credit over people with poor credit. These are all serious additional costs of walking into foreclosure.

In the end, I don’t think Kelli should walk away from her mortgage as a first response. She should try several other avenues first that would preserve her credit and perhaps even allow her and her family to remain in the home.

First, I’d simply talk to the lender. Explain your situation and discuss options available to you. It’s often easier for a lender to just refinance with you (sometimes even removing some of the principal) than it is to put the homes in foreclosure. Many lenders are currently focused on refinancing in this way rather than taking on more foreclosed homes, so it’s certainly an option.

Second, I’d look at the extra financial costs of what will happen if you do foreclose. Run the numbers carefully here. Include all the extra costs – a serious bump in your insurance rates, for example – and make sure you also include some estimate of the cost of the risks mentioned above – the extra cost of a new car or the challenge of finding a rental home or a new job. Those things have serious financial costs if they occur – or they might have no cost at all. A good way to appraise it is to figure out the cost if it does happen, then estimate the odds of it happening. So, if something has a cost of $100,000 and has a 40% chance of happening, it’d be a $40,000 cost.

You might be surprised to find that staying put is the best option, even if you happen to be underwater in your mortgage. If you still find that abandoning is the best option. then it becomes the moral question discussed above – and moral questions are things we all have to decide for ourselves.

One common, painful bill that we all face is the insurance bill. Whether you’re talking renter’s insurance, homeowner’s insurance, or automobile insurance, the bill feels painful because it’s not something we can often directly see the benefit from. It just comes in handy when something goes wrong.

One of the most common tactics that you’ll see in cost-cutting articles is calling up your insurance company and requesting an increase in your deductible – the amount you have to pay before the insurance kicks in.

On the surface, this works well. If you increase your deductible, your premiums (the amount you pay each month/quarter/year) will go down, meaning your monthly bills are lower. You can chip hefty percentages from your insurance bill just by making this move.

One of my long-time readers, Jeanne, has been writing to me about insurance this week. She has considered doing this, but something is convincing her that it’s not the best move:

I understand that raising a deductible will lower your premiums. But why do we have insurance in the first place? Doesn’t raising the deductible through the roof defeat the purpose?

The first thing to note here is that the purpose of insurance is to insure that you’ll survive financially due to an unforeseen event. We don’t have homeowner’s insurance because it’s fun – we have it because it will help us start over with a new home should our house burn to the ground. Without it, most of us would financially sink. The same goes for renter’s insurance – it’d be tough to lose all of your possessions in a fire without any way to recover. Again, with automobile insurance – if you total your car without insurance, you might be sitting holding just a car loan and nothing to show for it.

Obviously, if you have a ton of money, insurance on smaller things is a lot less important. People with huge bankrolls have no need to carry full insurance on their cars – they just cover the parts that might worry them or that they’re legally required to cover.

Saving money by raising a deductible assumes that you have the cash on hand to cover the deductible in such a situation. If you raise your auto deductible from $200 to $1,000, you’ll see a big drop in your bill, but if something goes wrong with your car, you’re going to need that $1,000. If you don’t have that $1,000 in an easy-to-access place, then you’re in real trouble.

The solution is simple: if you have a well-funded emergency fund in a savings account somewhere, you can raise your deductibles some without worry. A well-funded emergency fund means a minimum of a couple months’ worth of living expenses, plus more if you have dependents. If you have that kind of cash that can be accessed with ease, then by all means, raise your deductibles.

Won’t this cost me more in the long run? Many people who consider this ask themselves whether such a move will cost them more in the long run. After all, if they’re having to come up with a lot more money on each claim, are they really saving money overall?

The average homeowner makes an insurance claim once every nine years. If you raise your deductible on your homeowners’ insurance by $1,000, you only need to save about $120 a year in your premiums in order to create a net savings on average – and, likely, you’ll save a lot more than that.

Similar math exists for other types of insurance. The claims made are so infrequent that you only have to save a little bit on each insurance payment to make up for the additional cost on the deductible.

The key, though, is making sure you have the emergency savings to handle that higher deductible. If you don’t have that, make it a priority before you consider making changes to your insurance policies.

This is part of an ongoing series about how to trim the budget of the average American. As this series focuses on such broad-based tips, some will work for you and some will not. You’re invited to mention in the comments the tips that you found to be the most useful for inclusion in a comprehensive budget trimming guide at the conclusion of this series.

Life, other personal insurance – $309

“Other personal insurance” includes long term disability insurance, long term care insurance, and umbrella liability insurance, making this a pretty sensible category overall.

Of course, for most of us, life insurance is the eight hundred pound gorilla in the room. It draws most of the money from this category, as many families rely on the support of others (and of Medicare) to help in the case of long term disability.

As with anything else, a bit of extra care can really trim the dollars from our spending on life insurance without reducing the quality or amount of our insurance one iota. Here are some ways to really tighten the screws on the life insurance ship.

Figure out whether you need it at all. Do you have dependents that will require financial support after your passing? Do you have adequate resources and assets to cover funeral and burial expenses? The answers to these two questions should really point you as to whether or not you need any life insurance at all.

Know the amount you need. Use a thorough life insurance calculator to estimate exactly how much you need. Don’t rely on your own personal guesses or, perhaps even worse, the estimates of a salesman to tell you what you need. Figure it out yourself.

Buy term. Many – if not most – companies and individuals that will attempt to sell you a life insurance policy will attempt to package some sort of subpar investment product along with it, with some name that usually involves the words “whole” and/or “universal.” Such policies almost always earn quite well – for the salesman that sells it to you, that is. If you are excited by the idea of earning money from your insurance, buy a term policy and bank the savings in an investment of your own choosing, like a Roth IRA.

Shop around for quotes. Much as with anything else, you don’t have to buy from the first place that you talk to that quotes you a price. Get lots of quotes. Find the best deal before you buy. Note that this isn’t always the least expensive deal – I would consider a policy from “Ma and Pa’s Fly By Night Life Insurance Kump’ny” less reliable than policies from other sources. Stick with reliable, large firms with a long history.

Look for special programs available to you. Many workplaces and social/service organizations (like AAA or AARP, for starters) offer very strong rates on term life insurance. Look into what’s offered through your job and through any organizations you belong to for additional quotes (and they’re often strong quotes).

Evaluate your payment terms. As with many types of payment, you can save substantially if you choose to pay quarterly, semiannually, or annually instead of monthly. The savings often far exceeds what you can possibly earn in your own investing with that money, so there’s no question that you should jump on board to minimize your annual costs.

Improve your personal health. Many policies require a physical before they can give you an exact quote – and the better you do on a physical, the better your rates will be. This is yet another reason to get your weight and personal health under control. Eat better, and get a little exercise.

Ignore the salesmen. Insurance salesmen will almost always come after you with a great pitch about some insurance-related product different than the basic policy you want. Let them ramble, but remember that you’re not hearing about the large cut they take from selling you this policy. Ignore it – or, if you must, take the information and actually research it extensively on your own. Don’t let them sell you something you don’t need.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming these costs. I’ll include the top choices in a comprehensive budget trimming guide at the conclusion of the series.

I can’t tell you how often I’m contacted by readers who tell me the story of their lives, then ask the big question: how much life insurance do I need? I’ll hear from twenty four year old single women and forty year old men with a wife and three children. I’ll hear from people with almost nothing and people with hundreds of thousands of dollars in the bank. They all ask the same question.

First of all, term life insurance is the way to go. Other types of policies tie a subpar investment into the insurance policy. If you want to invest, invest separately with a firm that specializes in investments and will customize an investment to meet your needs.

Term policies are simple to understand. They offer a certain amount of coverage over a certain period of time. If you keep up your premiums (your regular payments), if you die within that time period, your stated beneficiary will receive the value of the insurance. So, if you buy a $500,000 ten year term and you die within that time period, your beneficiary receives $500,000. If you live through the end of the policy, you’re back to square one.

Here’s the thing, though. Not everyone needs life insurance. For starters, people who have been careful savers throughout their lives often have no need for life insurance as they’ve accumulated enough wealth on their own to sustain their family. Similarly, people with no dependents often have little need for life insurance if they have much cash in the bank at all (to cover funeral expenses, for example). Life insurance is only necessary if, in the event of your death, people would be left in a financial bind without some sort of resource.

So, the first question is how long should my term be? For parents, you should get a term long enough that the children you plan to have are independent before the term expires. Otherwise, it’s about your own comfort level. Shorter terms tend to have cheaper monthly premiums, but if you aren’t careful with your money, you may find yourself buying a new, more expensive policy in ten or twenty years.

The next one – and it’s often the big one – is how much? I think there are three key things to consider.

First, what’s the income shortfall for the people left behind? Simply put, how much money each year would your survivors need to maintain their standard of living? This isn’t just straight replacing your salary, since they won’t have your costs any more.

Second, how long will they need that income shortfall? If you have young children, it will be quite a while. If you just have a partner, they may not need it for as long. You should talk this over carefully with your partner so that you both can make a realistic decision. I usually encourage people to calculate for their children’s needs until age twenty or so.

Additional things to consider: your own funeral expenses, the cost of college for your children, any donations you’d like made in your name, and special care needs (for example, if you’re taking care of an elderly relative, who will do it when you’re gone?).

Third, how much do you have now? What’s in your savings? Your investments (like your 401(k))? What other insurance policies do you have? Would your family stay in their current house, or would they downgrade?

The calculation is simple. Figure up the first number, multiply it by the second number, and then subtract the third number. That’s how much life insurance you should have, in a thumbnail sketch.

If you’re unsure about certain numbers – and you probably will be – round up. It’s better to aim too high than to aim too low and let people down.

In the end, though, remember that the real thing you’re buying with life insurance is peace of mind. Going through these calculations and then actually purchasing a policy serves the purpose of letting you sleep better at night.

Good luck!