On the Money - Life Insurance 101
National Association for Female Executives

These four steps will help you get the coverage you need.

By: C.J. Prince, Photo: Aleksandr Ugorenkov/istockphotoIf you haven't given life insurance much thought, you're not alone. Fewer women than men have any life insurance, and the gap in coverage for those who do is about two to one, according to the Life Insurance Marketing Research Association. The average death benefit for men is $143,000 compared with just $76,000 for women. "Women undervalue themselves," says Candace Kaplan, a CFP with New York-based financial services firm AXA Equitable. "We're always the caregivers, and these days we're the wage earners, but we just don't give ourselves credit for everything we do."

To avoid surprises later on, say Kaplan and others, you need the right coverage. And the earlier you start, the better—since the price only goes up. Here are a few simple steps to get
you started.

Know your value. Salary is just a starting point, says Karen Altfest, CFP and vice president of New York-based L.J. Altfest & Co. You have to make a list of all the contributions you make to the household and assign a value to each. "Picking up the kids from school, driving them to soccer, cooking for them—all of that should factor into a family's planning," says Altfest, "You have to look at what it would cost to hire someone to do what you do." 

Project into the future. Once you have a sense of your own "human value" from an insurance perspective, one of several online calculators (www.life-line.org, for example) will compute what your family would need to cover those costs at any point in the future, assuming inflation and a reasonable rate of return. As a rule, Kaplan recommends that her clients get enough insurance that, wisely invested, will generate the lost income. If your salary is $50,000, for example, you need a pool of roughly $1 million, which, earning a conservative 5 percent per year, will replace that income on an annual basis. 

Put it in context. Since life insurance is meant to supplement other sources of available funds at the time of your death, consider all other retirement, 401k, 529, and savings accounts, as well as your spouse's or partner's income. A trusted financial advisor can help you look at various life insurance policies in the context of your family's larger financial picture to make sure you get enough—but not too much, either. "Specialists will look at just one area, but it helps to have somebody look over everything and see how it all fits together," says Altfest. And if you have a policy through work, make sure it supplements other kinds of insurance and not the other way around, because if the policy isn't portable, your coverage ends when you leave your job.

Find the right product. Insurance products generally fall into two categories: term and permanent. Fairly inexpensive upfront, term life insurance provides a guaranteed death benefit over a period of time, usually 20 or 30 years. Permanent life insurance, such as whole, variable, or universal life, gives you lifelong protection with the opportunity to accumulate cash value, but you'll pay much higher premiums. Some permanent policies, such as whole life, act as investment products as well. "I don't think of insurance as the greatest investment," says financial planner Sharon Rich, whose Belmont, Massachusetts firm, Womoney, caters to women. Rich advises clients to use vehicles such as 529s and Roth IRAs for investing and to buy a 20- or 25-year level term insurance policy to supplement.

The hitch to term is that it ends at a set date, and if your needs change down the road, your age and health may prevent you from getting more coverage. "My goal was to have as much coverage as I needed when my kids were young and then convert it to more permanent coverage as I saw the need continue," notes Kaplan. "It's a very dynamic number because things never stay the same."