The most typical reason for purchasing life insurance is to ensure your spouse and dependents have sufficient funds to maintain their lifestyle. To determine how much is needed to do that, consider these questions:

1. What lifestyle do you want to provide to your spouse and dependents when you die? Review their needs in detail, taking a look at things like:

• What standard of living do you want to provide? Will your spouse and children live in the same house?

• Will the family have to make different child-care arrangements?

• How many and what kinds of automobiles will be needed?

• If your spouse works, will he/she decide to stay home with the children?

• If your spouse stays at home, will he/she return to the work force?

• Do you want to pay for your children's college educations?

• What other financial help do you want to provide to your children?

• Do you want to pay off a mortgage or other debt with insurance proceeds?

• What are your spouse's retirement plans? Is he/she counting on you for retirement income?

• Do you need to consider the support of elderly parents or other relatives?

2. How much will that lifestyle cost? Come up with an estimate of how much this lifestyle will cost. Include all of your current expenses that would remain the same as well as any new expenses you have identified, such as for child care. Remember to factor in hidden costs, such as providing for health insurance that was paid for by your employer. For large debts, such as a mortgage, determine if it makes sense to pay the loan off in full or to continue making monthly payments.

3. How much life insurance do you need? First, consider what other income sources your spouse and/or dependents will have. This could include your spouse's earnings, retirement plans, Social Security benefits, savings, and investments. Life insurance proceeds will be needed to provide the difference.

Your life insurance needs will change over time, so you should periodically go through this analysis.