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3 questions to answer about life insurance

Life insurance can get complicated fast. Most of us, though, need to answer just three questions. Those are:

Do I need it? If you have people who are financially dependent on you, the answer is yes. If your spouse or partner needs your income to help pay the mortgage, you need life insurance. If you have minor children, you need life insurance. That's true even if you're a stay-at-home parent because someone else would have to provide child care.

How long will I need it? Children grow up, mortgages get paid off. Most people need life insurance for only a limited time: 10, 20 or 30 years. If you have a special-needs child, though, or you're wealthy enough to worry about estate taxes, you may want coverage for life.

How much do I need? A common rule of thumb is to buy five to 10 times your current income. That's a pretty wide range, and it could leave you with too little insurance if you have significant debt and your kids are small -- or too much if you have a lot of savings and investments. Play with a few calculators to narrow down which expenses you really need to cover and for how long.

Once you know how much insurance you need, you can start shopping for coverage. One thing you'll quickly discover is that term insurance -- which is designed to cover you for just a set number of years -- is much cheaper than "permanent," or cash-value, coverage, which combines insurance with an investment component and is designed to cover you for the rest of your life. Permanent insurance can cost 10 times as much as term coverage, so make sure you can afford to buy enough if you go the permanent route.

One final point: If you need life insurance, don't procrastinate. Premiums tend to go up as you age, plus you run the risk of developing health problems that could make insurance more expensive or even unattainable. Do the right thing by the people who depend on you, and buy it now.

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