Your assignment is four-fold. First, determine whether you need life insurance. As discussed earlier, not everyone needs life insurance. If you have no dependents, and if you are in good health and do not have a family history of disease that would keep you from getting coverage, you may not need life insurance. However, if you are married or have dependents who would suffer financially if you were not around, it is critical for you to have life insurance. Life insurance should be in place before you become involved in personal investing or retirement and estate planning.

Second, determine your goal for having life insurance. If your goal is income replacement, the least costly and most appropriate type of life insurance for most individuals is term insurance. If your goal is estate planning, you should evaluate cash-value products. If your concern is making sure you have insurance in case of an unforeseen medical event (which would preclude coverage), you should consider either a convertible term policy or a permanent product. Deciding on your goal for insurance is a critical part of evaluating the different types of life insurance products.

Third, determine how much insurance you need. Based on the framework laid out in this chapter, estimate how much insurance you will likely need. Remember, as interest rates decline, the size of the assets you will need increases. I encourage you to use Learning Tool 29:Calculating Life Insurance Needs to determine how much insurance you need.

Fourth, determine how much insurance you can afford based on your budget. This is a critical step. Take into account the potential for job-loss or changes in lifestyle caused by children, teenagers, and so on, when you are considering your budget. Insurance consumers lose a significant amount of money each year because they mainly purchase permanent products. These consumers pay very high up-front costs on the permanent products, and they must often cancel their policies after a time because they lack funding or because their plans have changed.

Finally, evaluate the different insurance companies and the different products available. Using the criteria discussed, evaluate the different insurance companies for stability; look for signs that they will be around when benefits need to be paid. Determine the type of product that you should have, evaluate the different alternatives, and include your findings in your financial plan.