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Can you ditch your life insurance?

In hard times, more people are canceling their life insurance coverage. Here are some cheaper alternatives.

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Lifestyle planning can go a long way, too. Consider a couple who has two children, lives in a four-bedroom house, and depends on one primary income. If the at-home spouse has marketable skills, then she or he might draft a realistic plan for carrying on after being widowed.

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Example: Rejoin the workforce, downsize to a smaller home, and otherwise cut expenses. A well-conceived plan means a household doesn't need a life insurance policy that would sustain a current lifestyle because the lifestyle is certain to give way to a more sustainable one.

Cut down on debt

Other techniques can reduce risk as well. Mr. Gustafson recommends keeping debt levels low, since a surviving spouse can inherit debt as well as assets. People who aren't eligible for life insurance, such as someone living with chronic health conditions, might want to look into the death benefits available through variable annuities, Fisher says. He cautions, though, that annuities typically come with high fees and modest death benefits.

Families might use multiple strategies for cutting risk for survivors, Mr. Armstrong says. But few financial instruments offer a tax-free lump sum payment at a time when it's most needed. For that reason, he says, life insurance is often worth carrying, at least when children are young and risks are substantial.

"A lot of guys don't realize that a wife, especially, needs that security of knowing she'll be able to go on if something were to happen to her husband," says Jan Henryson, director of the nonprofit Center for Financial Education in Sioux Falls, Iowa. A growing number of her clients are trying to save money by forgoing life insurance. Since most of them don't have an alternative strategy, she urges those with young children to investigate getting life coverage through employee benefits plans.

Some with kids do well to lock in premiums on 15-year coverage plans, she added. "We encourage them very strongly, if they are insurable, to look for a term life policy that is pretty inexpensive for the coverage you can get and the security you can provide for your family."

A healthy nonsmoker under age 40 can get a $250,000 policy for less than $25 per month, according to Mike Halloran, a Jacksonville, Fla., insurance salesman and president of the National Association of Estate Planners & Councils.

"The biggest thing life insurance has going for it is the tax-free death benefit that you get in most cases," Armstrong says. "There aren't many assets that can rival that, especially when you're paying pennies on the dollar to get that death benefit."

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