There are many factors that go into how much you should spend on life insurance, but as a rule of thumb: If there is anyone who depends on you financially -- a spouse, kids, elderly parents or a disabled loved on -- buy sufficient life insurance to replace your salary and other kinds of income, such as your employer's contribution to your heath insurance premium or matching funds for a retirement plan.

Even if you don't have children, you might want to buy life insurance to pay off the mortgage on your home, if making the payments requires two incomes.

You may also want to set aside funds for any changes your dependents would need to make after your death, such as moving closer to other relatives who can help care for them.

When considering life insurance, you have two basic choices. Term insurance pays only if a death occurs during the life of the policy, typically between no more than 30 years. Typically the premium and the size of the payout remain the same through this period.

Jack Hungelmann, an insurance agent and the author of Insurance for Dummies, says this is the best solution for most people. Choose a term long enough to cover you until your youngest child finishes colleges. In most cases, you won't have reached an advanced age and will remain relatively healthy before the term expires. This keeps the cost down, since fewer people collect.

Whole life insurance, also known as permanent insurance, is more expensive, but pays the same death benefit whenever you die - no matter how old you are. In order to keep the premiums level over the life of the policy, insurance companies set the rates high enough so that the money they collect in the early years offsets the later years' increased risk.

The difference between the premium in the early years and the actual cost to the insurance company of insuring you is called “cash value.” It is set aside in a savings account; your investment options vary with the type of policy.

You may be able to borrow against the value, and if you opt not to renew your policy, you can get some of it back. In later years, when the premium you pay not longer covers the cost of insuring you, the savings is drained.

Hungelmann says whole life is the best option if there is someone who will always need your financial support, such as a disabled child. But most people should stick with term life.

“The biggest problem with permanent insurance is it's not as good a buy; young people with kids who buy permanent insurance typically have much less than they need because it is so expensive,” he says. As a result, “they are way under-insured.”

For example, a healthy, 30-year old male will typically pay less than $1 per year for a thousand dollars of coverage with term life insurance; by comparison, the same amount of whole life costs $5 to $10 per thousand dollars of coverage.

Bread winners aren't the only ones who need insurance. Hungelmann says anyone providing a benefit for the family but not earning outside income should have between $250,000 and $500,000 of coverage. And not just because it would cost a lot to hire a nanny and a housekeeper. “If your kids lose their mother, it would be nice to be able to afford to take time off to help them cope with the loss,” he say

Make sure the term life insurance you purchase can be converted into whole life. Even if your kids are out of school, and on their own, you might find you need permanent insurance if, say, your spouse developed Parkinsons. And when converting a term-life policy into a whole-life policy you are guaranteed preferred rates (rates for healthy people), even if your health has deteriorated in the meantime.

Even at preferred rates, it's still considerably more expensive to get whole life insurance in your 60s than it is when you are in your 30s. But Hungelmann says you will have saved all of money you didn't spend on higher whole life premiums over the past 30 years.