YOUR MONEY: Consider family, charities when selecting life insurance

Last week I discussed how disability insurance can be more important than life insurance. But that isn't to say life insurance is not important. If we have someone else depending on our income, then life insurance has a spot in our financial plan. But the question often comes up — how much do I need?

The answer is more a personal belief than a financial fact. We want to leave behind enough money to care for our dependents' living expenses but some may want to leave more to give dependents a better lifestyle or enough money to last them through retirement. Important considerations to factor when deciding on an amount include:

- How much do your dependents need to meet their expenses and your goals and for how long?

- How much can you afford to pay in premiums?

- How much more do you need to pay final expenses and debts at death?

- How much will you need to pay estate taxes, if any?

- How much do you want to leave to your favorite charity?

- How much more of all of this do you need to adjust higher for inflation?

- Do you want to leave it in a trust to ensure the money is managed and not spent too soon?

Once you know how much you want to leave, the next question is what type of policy is best.

The two basic types are ones that build up a cash value and ones that pay a benefit during a set term, such as the next 20 years.

Cash value policies can act as a savings device to allow you to pull out money when needed. However, they are more expensive and the cash may not grow as fast as other investments. The term policies are popular for planning, such as the number of years between now and retirement. Some people have a hard time paying a premium that they may never collect on, but it's the same way with auto insurance or disability insurance. You are paying a fee for the protection.

Before buying, review the policy carefully to understand the contract. Then make sure this policy will meet your needs for the long term. It may be costly to drop a policy when it has fees to cancel.

Finally, premiums change over the years, so make it a habit to keep shopping every year or two for a lower rate, especially if your health improves. However, don't drop a policy until a new one takes effect.

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