Checklist Life Insurance Coverage

When buying a life insurance policy, there are many factors to consider. How do you know if a policy is going to give you -- and your loved ones -- the right amount of coverage? Here is a checklist of things to take into consideration when consulting with your insurance agent about coverage amounts.

Your family's basic needs. Are you the sole breadwinner? You will want to provide enough for your family to live comfortably.

Mortgage. Your policy's death benefit should be high enough to cover your mortgage. If it isn't, your loved ones will have to deal with a mortgage payment after you die, which may mean selling your home. Including the mortgage amount will mean the home will be paid off when you die. You can also buy separate mortgage protection insurance, which covers only the amount owed on your mortgage when you pass away.

College education. If you want to make sure you leave enough to help your children or grandchildren pay for college, include that in your policy. If you have a term life insurance policy, you can secure the money for tuition as part of your death benefit -- a good choice if you are reasonably certain that you will not live to see your child or grandchild reach college age. You can also get a cash-value policy that enables you to cover the cost of the tuition while you are still alive. When calculating the education needs of children and grandchildren, be sure to include room and board expenses, as well as books and supplies.

Funeral expenses. No one wants to think about it, but when you are gone, your loved ones will have to handle the arrangements. Try to include a bit extra in your death benefit for these expenses. Funeral expenses can range from $4,000 to $10,000.

Estate tax. Your estate may be subject to estate tax when it is turned over to your family. Speak with a tax advisor to find out whether you can estimate your estate's tax rate. Add that amount to your life insurance so that your heirs receive the full value of your estate. Keep in mind that the death benefit may also be subject to estate taxes. Consult a tax professional and insurance agent about your particular situation.

Charitable donations. If you would like to leave your money to a particular charity, you can name it as your beneficiary. You make regular premium payments and when you die, the charity receives your death benefit. If you don't want to give your entire death benefit to the charity, you can arrange to donate a portion of your benefit instead. You should consult with an endowment manager at the charity of your choice to work out the details.

Because changes in your life will affect your coverage needs, you should review your life insurance policy often. If you experience a major change, such as the arrival of a new baby, a spouse getting laid off or a sizeable inheritance, you may want to change your policy to reflect these changes.