What if you got hit by a bus?

How much life insurance is too much?

Q: How much life insurance do you need?

A: Well, how much can you afford?

Because term insurance is so cheap, says Mary Claire Allvine, a financial planner and a co-author of "The Family CFO: The Couple's Business Plan for Love and Money," some people end up paying for more than they need.

Going by the standard industry guidelines, I was all set to buy $1 million worth of coverage for myself (I'm the primary breadwinner) and $500,000 for my spouse.

That came to $87 per month, according to estimates of top-rated policies from both Accuquote and Insure.com, pending our upcoming physical examinations (yes, they are sending a nurse to our house to verify height, weight, blood pressure and cholesterol levels!).

By contrast, the MSN Money calculator recommended half that amount of coverage for each of us. To my surprise, Allvine's advice was to consider going with the lesser amount of coverage. Given how unlikely a premature death would be, she points out: "How much do you want to sacrifice today for something that is a very slim possibility? I would save and invest the difference in your retirement fund, for the very real possibility that you'll be around in 30 years."

My bottom line

As much as I would like to investigate the world of whole life, universal tax-free triple-bond sliding annuity policies, the fact is I am a full-time working mom with a toddler and a short attention span (mine, not his). I need a simple solution that will give us the best coverage now, at the least cost and most benefit, so 20-year level term insurance is best.

Part of me would like to know I had $1 million worth of coverage. It sounds sexy. But I agree with Allvine that in the absolute worst-case scenario, if I were to die, half that amount would cover my family's needs.

That said, I decided to keep my husband's coverage at $500,000 as well, rather than reducing it to $250,000. If he were to die, not only would I have to replace his support, I would likely take time off from work, so his death benefit might need to replace some of my income as well. The total cost is $62 per month. (The $25 a month we save by not over-insuring could grow to $20,000 in 30 years, even invested conservatively.)

The rest of your what-if plan

Life insurance is one of the biggest and most time-consuming aspects of a family financial plan, but it doesn't stop there.

Depending on how complicated your estate is or will be, you need a will, a named legal guardian and a power of attorney -- because if you die suddenly, you don't want strangers making decisions about your money or your children's fate.

Again, these steps aren't necessarily expensive (a lawyer is drawing up our will for $150), but they take time. We are still stalling because we haven't chosen a guardian.

Allvine says not to overlook other simple, no-cost ways to make sure your death isn't harder than it has to be. "The No. 1 problem I find: Where is stuff? Where is your boss's phone number, the tax files, the PIN for your ATM card? These issues can be overwhelming at death."

Allvine recommends keeping a noncomputerized file or "doomsday" notebook that contains the following:

• Account numbers and access passwords.

• Phone numbers of important people or professionals that your spouse may need to know.

• E-mail addresses and passwords.

In addition, your spouse or other survivors need to know where to find any and all legal documents: wills, trusts, living wills, powers of attorney, divorce decrees, custodial agreements, Social Security cards, passports, the family's birth certificates.

Start by walking your spouse through your office or showing him your quirky password system. That's what I'm going to do.

Published Feb. 20, 2008

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