Life insurance is far more than just a decision of how much to buy. Depending on your financial situation, life insurance can be used for a variety of purposes, such as:

• Estate planning
• Accumulating cash
• Transferring wealth
• Achieving estate tax liquidity

Life insurance is like auto insurance in that you can buy a lot of it or not very much at all. On the other hand, life insurance differs from auto insurance in that, depending on the type of policy you buy, you can pay a lot or a little for basically the same death benefit. Keep in mind though, the younger and healthier you are, the less you will pay for coverage. Life insurers really, really like to have their policyholders around for a long, long time.

Tip. So how much life insurance do you need? It depends. One common benchmark is your death benefit should be about six to eight times your annual earnings, but there are a variety of factors to consider:

• Other income sources.
• The size of your family.
• Whether your spouse works and his or her earning capacity now and in the future.
• The number of people who are financially dependent on you and for how long.
• The death benefits your family will receive from Social Security and any life insurance plan at your place of employment.
• And any special needs such as mortgages, college education funds and estate planning.