Liz Weston

A few weeks ago I asked my Facebook followers if they had enough life insurance and, if not, what was preventing them from getting more.

Only two people mentioned cost. Many of the rest weren’t sure how much they needed or where they could turn for objective, unbiased help. A few were pretty confident they had enough insurance…although in reality they may have needed more.

The two most important questions to ask about life insurance are, “Do I need it? And if so, how much do I need?” The answers to those questions trump all other considerations—regardless of what your friendly insurance agent might be trying to sell you.

Here’s what you need to know:

If you have financial dependents, you need life insurance. Minor children are financial dependents. So is a spouse or partner who needs your income to pay the mortgage. Stay-at-home parents need coverage, too, since a surviving parent would likely have to hire childcare help. Some people have elderly parents who rely on them for income or caregiving or both; those people need coverage as well.

If you need life insurance, you probably need a lot. As in five to 10 times your income. The amount will vary according to your earnings, your savings and estimated future expenses, so it’s worth taking the time to get a more personalized estimate. MSN has a life insurance needs calculator here. Bankrate has one here.

Social Security survivors benefits probably won’t be enough. Social Security can provide checks to your survivors, but they won’t replace your income and they have limits. Social Security survivor benefits end at 18 or 19 for the child, while parental benefits (the check a surviving parent gets for caring for a covered child) end when child is 16. Widow’s or widower’s benefits typically don’t start until age 60. You can see what your estimated survivor benefits are at http://www.ssa.gov/estimator/

Insurance you buy through work usually isn’t portable. Many employers provide a life insurance benefit equal to your annual salary, and some allow you to buy more coverage. This may be the most economical way to buy life insurance if you have health issues or other risk factors, but the big downside is that the policy is tied to the job. Lose your job, lose your coverage. If you can, it often makes sense to buy at least some coverage independently.

Permanent insurance is for permanent needs, which most people don’t have. Term insurance covers you for a certain time period, usually 10, 20 or 30 years. Permanent insurance is meant to provide you coverage for life. Insurance agents love to sell permanent insurance, which often has some pretty cool features. The problem is that the premiums can be 10 times what an equivalent amount of term insurance costs. Remember, if you need life insurance, you need to get enough life insurance. Settling for too little coverage could leave your family in a real hole. If you do have a permanent need for insurance—you have a special needs child or an estate-planning issue that requires it—talk to a fee-only financial planner about your options. Otherwise, shop for term insurance at places like Accuquote or Insure.com.