Q: We are in our late 20s and just had our first child; we know we need to buy some life insurance. We had planned on buying the cheapest policy that would provide the most coverage, but when we meet with agents, including a friend of ours who recently became licensed, they suggest a combination policy. They explain that this type of policy would not only provide protection by paying a lump-sum death benefit, it also would be a good investment for our retirement or college for our child.

Because of budget constraints, if we buy these policies, we would need to stop contributions to our Roth IRAs. The agents say this shouldn't be a concern because the investment portion of the policy is just as good as the Roth investment, and we need to buy life insurance anyway.

We are also confused about how much coverage we need. We both work outside the home, but my wife might decide to stay at home or cut back on hours for a few years until our child is 3 or 4 years old. Do we buy insurance on both of us or just me because I will continue to earn a salary? Any suggestions on types and amounts would be appreciated.

A: Congratulations on the birth of your first child, knowing that purchasing life insurance should be a high priority and on contributing to Roth IRAs!

I'm going to give your newly licensed friend the benefit of the doubt and assume that he or she is just doing what his or her general agent says. But shame on the others.

Continue funding your Roth IRAs and buy term insurance. Wait until you have a high net worth and a need for estate planning to consider the more complicated and expensive investment-oriented life insurance policies.

The most important reason to purchase life insurance is to assure that in the event of an untimely death, your dependents will be able to maintain their desired standard of living. The best way to achieve this is to purchase a large death benefit at a low cost by buying term insurance. Term insurance is pure protection; there is no cash buildup. It's inexpensive because statistics show the odds are, you won't die while you own it.

The main types of term policies are annual renewable term: 5-, 10-, 15-, 20- and 30-year-level premium/death benefit term and decreasing term. The shorter the coverage period, the lower the cost. In your situation, a 20- or 30-year-level term policy will provide the protection you need until your child completes high school or college. You will pay a bit more in the first years, but you gain peace of mind with the level-term policies. There is no worry about future medical underwriting, and you know what to budget.

A rule of thumb on amounts is to purchase a policy with a death benefit equal to 10 times your annual income after taxes. I prefer that you take the time for a more tailored determination. Add up the annual needs of the surviving spouse and buy at least enough coverage to provide that amount for a certain number of years. In addition to the annual living needs, add enough coverage to fund college and retirement.

A stay-at-home parent should have her or his own coverage. If that parent were to die prematurely, many of her or his responsibilities would need to be handled by someone else. Day care, housekeeping, shopping, cooking and the like could create additional costs. The income-earning, surviving spouse might also see a reduction in earnings if he or she curtails travel or cuts back on hours.

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