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Ask the Life Insurance Expert

My newlywed daughter and her husband have a 3-month-old baby. What kind of life insurance should they buy for themselves and their baby, and how much should they purchase? They don't have a lot to spend.

You might see advertisements for cheap life insurance to cover children. But your daughter and son-in-law's first priority should be to insure their own lives so if something happens to one of them, life insurance would provide money for the surviving spouse to cover the bills and provide for their child. The amount and type of coverage they buy will depend on their needs and what they can afford.

If their combined family income is between $10,000 and $40,000, they should check out MassMutual's Lifebridge program, which offers a free $50,000, 10-year term life insurance policy for a child's educational expenses if a parent dies within the term. Some restrictions apply.

Although there are many variations among policies, life insurance boils down to two main categories -- permanent life insurance and term life insurance.

Permanent life insurance, such as whole life or universal life, covers the insured person's entire lifetime. The policy pays a death benefit to the beneficiary no matter when the insured dies. It also features a cash account that grows slowly over time. The policyholder can borrow against the account, or even use it to pay premiums once it's reached a certain level.

Term life provides coverage for a certain number of years, such as as 10, 15, 20 or even 30 years. The policy pays out only if the insured person dies within the term, and it does not include a cash account.

Term life is simpler and far less expensive than permanent life insurance. It's designed to provide a safety net for those crucial years when a family has bills to pay, such as a mortgage, and children to support. If a parent dies during the term, the life insurance proceeds can help maintain the family's lifestyle and pay for the children's college education.

Experts recommend life insurance for both parents, even if one is a stay-at-home mom or dad and doesn't currently earn an income. Why? If the stay-at-home parent dies, the surviving parent will have to pay others to provide the services the late parent provided for free. That doesn't mean, however, that both parents must be insured for the same amount.

Your daughter and son-in-law need to do a thorough assessment to determine what they can afford to pay for life insurance, how long they need coverage and how much they need. They should get life insurance quotes and talk to a trusted financial adviser. Although term life is much simpler than permanent life insurance, the choice among term life policies still requires careful consideration. A variety of riders, or policy add-ons, are offered. A good life insurance agent can walk them through the choices so they get policies that provide the protection they need for what they can afford.

The Life and Health Insurance Foundation for Education offers helpful information for consumers about how life insurance works.

For more, see Life insurance basics.

Last updated: Apr. 16, 2012