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Life insurance is a contract or agreement between an insurer and a policyholder in which the insurer agrees to pay a specified amount of cash in the event that the insured dies while the contract is in force. The insurance company promises the death benefit in consideration of the payment of premium by the policy owner. The death benefit is payable to the beneficiary, which is a person, trust or corporation that has been named ahead of time by the policy owner. The most common use of life insurance is to replace lost earnings of a family breadwinner. Example: John, a 45-year-old husband and father of three, makes $95,000 per year as a salesman. John has elected to carry a $1,000,000 policy on his life, which costs only $49 per month. His wife is his named beneficiary.

Recognizing that each person’s situation is different depending upon their age, income, net worth, debt, lifestyle, desire to leave an inheritance, the number and age of dependents and amount of life insurance provided by an employer (typically not more than 2x annual earnings), here are some basic guidelines:

• For people who work, have children or a mortgage: 10-15 times your annual income
• For home caregivers with little or no earned income: $300,000
• For burial coverage and final expenses only: $10,000 – $25,000
• For children up to age 18: up to $25,000

For a quick, easy, and confidential way to estimate your life insurance needs, try our Life Happens Needs Calculator. Do not rely solely upon employer-provided life insurance because it’s probably not enough, and it’s probably not portable if you leave or change jobs. Ownership of that kind of policy resides with your employer, not you, and that might not be the best situation for your long-term family needs.

If you are working and have children or a mortgage, we recommend buying cheap term life insurance to cover you until your youngest child has graduated from college or until your mortgage debt is paid off, whichever is longer. This conservative approach means that you’ll have coverage through the critical period of family life. Make sure to also review quotes for those life insurance plans that now offer early payouts for long term care expenses or a critical medical event such as heart attack or cancer. Those plans are soaring in popularity because that extra protection often costs no more or only a small amount more.

Let’s say that you estimate that your youngest will be out of college in 14 years and that your mortgage has 20 years to go. We’d then recommend that you buy a 20-year initial rate guarantee policy. Once the children are on their own and the mortgage is paid off, you may or may not have a need for life insurance.

However, during the formative, “high risk” years in which you have dependents and debt, we recommend loading up on cheap term life. Families with special needs children should discuss with us their needs because we’ll often recommend a lifetime policy in that case.

If you’re looking to have insurance for funeral costs and other final expenses, however, you should consider what’s called “final expense” whole life insurance that is available with no exam required and often with no health questions asked.