You are probably aware of the importance of having enough life insurance coverage to handle the financial contingencies that may affect your family in the event of your death. However, determining the necessary amount of life insurance can be complicated. One general rule of thumb is that you should have enough coverage to equal five to seven times your annual salary. However, you may want to determine the "right" amount of life insurance coverage with a careful "needs analysis," rather than using an arbitrary formula.

The needs analysis approach incorporates an evaluation of your family's most important financial obligations and goals. This leads to planning insurance coverage to help address mortgage debt, college expenses, and future family income, as well as to provide liquidity for meeting future estate tax liabilities. As you develop an insurance strategy, remember to analyze your existing policies and consider other resources that may be available to your family, such as retirement benefits and savings. Remember, having the proper life insurance coverage can play a major role in any family's financial protection.