Life Insurance & Annuities: Frequently asked questions

I recently started my own small business. It's not making money yet, and money is tight at home (my husband does not work), but I would like to purchase life insurance to cover my family's needs if I die. What kind of life insurance would provide the maximum coverage for the least amount of money?

Sarah, Vermont

As a small business owner and your family's primary wage earner, you have several life insurance needs to consider.

Term life insurance is generally cheaper than whole-life coverage. That's because it gives you pure insurance protection for a certain time period, usually one, 10, 20, or even 30 years. If you die during that time period, your beneficiary (in this case, your husband or children) receives the death benefit. If you don't die during the time period, you get nothing.

The most common reason people enter into a longer term life insurance policy is because their death would affect the financial situation of dependents or loved ones. For instance, if you and your husband have a mortgage, or are thinking of buying a house, you might buy term insurance for each of you for the length of the mortgage. If you have children, you might buy term insurance to cover their college education or other expenses in case you or your husband should die. That way, a single parent is not left to bear the entire expense of raising a child.

If your small business is dependent upon you for survival, and it is your family's main source of income, you might consider buying "key person" life insurance. This coverage names the business as your beneficiary, and infuses the company with cash to keep it afloat if you die. The death benefit on a key person policy should be enough to help the business with operating expenses until it can find a replacement to take over the helm. (See Key person insurance can help companies mourning an owner or exec.)

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Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.