Want some peace of mind? Buy some life insurance. Not everyone needs it, but many people do. Why? You don’t buy life insurance for yourself. You buy it for your loved ones.

The Sept. 11, 2001, terrorist attacks, the nightclub fire in West Warwick, R.I., and the war in Iraq show that life is a precious gift, and you could lose it at any time.

“Whenever we see a situation like this, it causes us to pause and reflect on what would happen if one of us died,” said Michael T. Ryan, former president of the Financial Planning Association (Rhode Island chapter), a trade group for financial planners and others.

Deaths that result from such catastrophes are hard enough to bear, said Jordan E. Goodman, author of “Everyone’s Money Book on Financial Planning.” However, he said, “The real victims are the wives and children left behind who don’t have anywhere near the income they need.”

If you buy life insurance now, your policy can provide, upon your death, needed cash – tax-free – to your beneficiaries: your spouse, your children, other loved ones, even business partners.

Here’s a brief look at the basics:

How much coverage: How much insurance you need depends on your circumstances. There’s no one-size-fits-all answer.

For example, a young adult with no dependents who lives at home with parents may not need life insurance. But a young adult with young children and a mortgage may require a ton of it.

How much do you need? To find out, you must do what the experts call a needs analysis. In general, you estimate how much would be required to pay for burial costs and other final expenses, as well as the debts you leave behind.

In addition, estimate how much would be needed to replace all that income you would have earned – money that would have helped your loved ones pay for living expenses, a college education, retirement and other costs, said William H. Fitzgerald, president of the Rhode Island Association of Insurance and Financial Advisors, whose members are in the financial services industry and deal in life insurance.

To offset that amount needed, you should take into account such other factors as the value of your savings and other assets, plus the limited benefits available from Social Security (assuming you qualify).

In other words, it is complicated. “The shame of it is, most people probably spend more time planning their summer vacations than in evaluating what their life insurance needs are,” said Fitzgerald, who is also sales manager for Amica Life Insurance Co. in Lincoln, R.I., a unit of Amica Mutual Insurance Co.

After interviewing you and reviewing in detail your financial circumstances and goals, an insurance agent or other financial adviser can use computer software and other tools to estimate how much coverage you might need, Fitzgerald said.

If you prefer to do it yourself, you can assess your own needs, either with a calculator, a computer program (Microsoft Money or Quicken, for example) or other self-help tools. You might also consider using a rule-of-thumb, such as six to eight times your annual gross income.

But keep in mind that the amount you need is probably more than you think, especially considering today’s low interest-rate environment, said Ryan, who is also a certified financial planner licensee with Professional Planning Group of Westerly, R.I.

For example, a young parent earning $30,000 a year might need as much as $700,000 in coverage to generate enough money to replace that annual income for the family left behind, Ryan said.

Most people do not have enough set aside in savings or other assets to provide such a lump sum. That is where the “death benefit” from life insurance comes in. Broadly speaking, life insurance is available in two varieties: term and cash value.

Term life: This typically provides coverage for a fixed length of time, or term. As long as you pay the cost – technically known as the premium – your coverage stays in force.

But coverage ends when the term is up (unless you convert to a cash value policy, which at that point can be costly). This is why some people call it temporary life insurance. And unlike cash value insurance, which includes an investment feature, term insurance is pure insurance. It pays a death benefit when you die. Period.

James H. Hunt, the former Vermont insurance commissioner who is the Consumer Federation of America’s life insurance expert, said he prefers term life. “It’s simple, inexpensive and understandable,” he said.

A 40-year-old parent earning $50,000 in gross annual income might want enough coverage to replace 75 percent of his or her annual income, or about $37,500 in this example, Fitzgerald said.

That parent might need, in today’s dollars, a lump sum of more than $397,000 to generate $37,500 in annual income over 20 years, Fitzgerald estimated. If the parent also wanted to make sure mortgage and other debts were paid off at death, he or she might need coverage of about $500,000 overall, he said.

How much would a $500,000, 20-year level-term policy cost? (“Level term” means that the premium stays the same for the life of the policy.) In general, if the parent is a healthy nonsmoker, he or she might pay anywhere from about $40 to $85 a month, depending on the policy and other factors, Fitzgerald said.

(In general, premiums are lower for women than for men, Fitzgerald said. And the younger you are, the less you generally will have to pay.)

You can buy term life insurance through agents or other advisers, or directly from the insurer. It is also the most common type of group life insurance offered through employers. In addition, term life is widely available through toll-free phone banks or over the Internet.

Cash value: Broadly speaking, this type of life insurance comes in three varieties: whole life, universal life and variable life. No matter what it is called, however, it is permanent insurance – as long as the premium is paid, the coverage stays in place for as long as you want, potentially for as long as you live, Fitzgerald said.

In other words, this type of coverage is not limited to a fixed number of years. And it is not just insurance; it also provides some type of investment aspect, or “cash value.” Over time, the premiums you pay not only buy you life insurance, but also can build a source of cash for you. (The growth is tax-deferred, and you can borrow against the cash value of your policy.)

This type of insurance is also typically more costly than term insurance. (The premium is often higher in your younger years, lower in your later years – in retirement, for example, Hunt said.)

In the example above, a 40-year-old parent buying a $500,000, 20-year level-term policy might pay from $40 to $85 a month.

If that parent bought permanent insurance – a cash value policy – also with a $500,000 death benefit, it might cost from about $375 to about $417 a month, depending on the type of policy, the insurer and other factors, Fitzgerald said.

Because cash value policies are typically far more expensive than term coverage, financial advisers sometimes recommend a combination: some term, some cash value. “And if you can’t afford cash value (life insurance), at least get some term,” said Goodman, the author. “The main thing is to be covered.”

Cash value policies can be especially useful in special situations. In estate planning for wealthier people, for example, the policies can provide a needed source of cash to pay estate taxes and other expenses.

Such policies are also often used in connection with business planning. An owner of a family-run business who has two children might use such a policy to ensure that one child gets the business upon the owner’s death, while the other child gets an equal amount of cash.

Cash value policies can be complicated, especially if you are comparison-shopping, Hunt said. In general, unless you are an insurance professional, “There is no easy way to evaluate a cash value life insurance policy,” he said.

The terms and conditions of each policy can vary widely from insurer to insurer, and sometimes within the same insurance company.

There are lots of other details about life insurance, too many to list here. However, no matter what type of life insurance you choose, no matter how much you buy, and no matter how you buy it, the point is to get some coverage. Don’t put it off.

Death comes to everyone. Will you be prepared? Life insurance can help, especially if you have loved ones who will need financial support when you are gone.

TODAY’S TIP: If you plan to buy coverage on your own, here are some places that Goodman recommends:

-AccuQuote.com, (800) 442-9899

-QuickQuote.com, (800) 867-2404

-Quotesmith.com, (800) 556-9393

-Term4Sale.com, (800) 798-3488

Before you buy, check the rating on an insurer’s financial health. Here are some resources:

-Moody’s Investors Service, (212) 553-0377, www.moodys.com

-Standard & Poor’s Insurance Ratings Service, (212) 438-2400, www.standardandpoor.com

-Weiss Ratings, (800) 289-9222, www.weissratings.com

The nonprofit Consumer Federation of America has a service, provided by Hunt, that can help you evaluate new or existing cash value insurance policies. The cost ranges from $55 to $75 per policy. For more information, call (202) 387-0087, or see this Web site: www.evaluatelifeinsurance.org.

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(Neil Downing is a Journal staff writer and author of ” The New IRAs and How to Make Them Work for You.” If you have questions about your money matters, call us at 1-401-277-7484 or 1-888-697-7656 and leave a message. (When calling toll-free, please ask for ext. 7484.) We can’t reply personally; as many questions and issues as possible will be addressed in this column.)

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(c) 2003, The Providence Journal.

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AP-NY-03-31-03 0618EST