Your insurance needs will probably change over time. When you are a young, single adult, you may have little reason to purchase life insurance. As you start a family, your insurance needs will be greater, since other family members are depending on your income. As your children become independent, your insurance needs may decline. However, at that point, you may need life insurance for other purposes, such as to help fund estate taxes or for a business buy out.

To determine how much insurance you need, consider these questions:

What lifestyle do you want to provide for your spouse and dependents after your death? Review your needs in detail, taking a look at items such as:

• Do you want to provide the same standard of living, including things like vacations and club memberships? Will your spouse and children live in the same house?

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

• Do you want to provide for college educations for your children?

• If your spouse doesn't work, do you want that to continue or do you expect him/her to work after your death? If you expect your spouse to work, what is a reasonable amount of income to expect him/her to earn?

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

• How long must your family live off the insurance proceeds? Will your current retirement fund provide enough income for your spouse to live on after retirement or do you need to provide income until his/her death?

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

• Do you have estate tax considerations you want to address with life insurance?

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 child care. Remember to factor in hidden costs, such as providing for health insurance that was paid for previously by your employer. For large debts, such as a mortgage, determine whether it makes sense to pay the loan off in full or to continue making monthly payments.

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.