Chances are, you need life insurance. If you have people that depend on you to contribute to their financial wellbeing, you need life insurance. Life insurance is insurance on your life. It won't do you a whole lot of good, but when you die, it can contribute to how well your family is taken care of. If you have children, a spouse or dependent parents that you help care for, you need life insurance. The question is: how much?

There are certainly life insurance salespeople who will try to convince you to buy more life insurance than you need. And overinsurance can be a problem, because it's that much more money that you have throw down the insurance hole each month. You can, however, recover some of it if you choose a whole life insurance plan that offers cash back, or if you choose an insurance program that offers a partial premium refund if it expires before you die.

Factors that influence how much life insurance you really need

There are many factors that influence how much life insurance you really need. Some of these include the following:

• Funeral expenses
• Spousal expenses
• Expenses of children
• Consideration toward future expenses (like college)
• How much debt will need to be discharged
• Whether your spouse works as well

It is important to realize that if your spouse contributes to the monthly income, you should figure out how much life insurance he or she needs separately. Each of you should be covered. A good rule of thumb for life insurance is to get coverage for between 5 and 7 times the amount of your annual income, after taxes.

Getting term life insurance and whole life insurance

One of the most effective ways to insure yourself is to get a combination of term life and whole life insurance coverage. Term life insurance lasts for a set amount of time, usually 10 or 20 years. You can usually get a great deal of coverage for a small amount of money each month, especially if you are young and do not smoke. Getting term life insurance for 20 years can mean that your main family obligations are complete before the insurance expires. It is the most cost-effective insurance. Look for programs that offer a partial refund on premiums to maximize your dollar. You'll never get it all back, but you can minimize the damage.

Whole life insurance can be a supplement. Whole life does not expire as long as you pay your premiums. A smaller amount of money in such a policy can be great, as it can help your spouse after your death when the term life insurance runs out and your heavier obligations are already discharged. Get a policy that builds cash value, and you can get something back. Many policies allow you to cash out, and this means that you can cancel the insurance, get the value that has accrued, and take a vacation or pad your retirement. You should not expect a great deal from such policies, though, as the returns are not as great as those from other investments.