Hidden inside the answer is a principle of insurance that can save you money. Also included is one of the toughest financial planning questions there is. Let's start at the beginning and see if we can't have some fun exploring life insurance. We'll start by thinking about the purpose of insurance.
All insurance is a method for handling large losses.
Consider fire insurance. If your house burned down you'd probably have a hard time paying for the rebuilding and replacement of everything that was lost. The predictable loss is then shared proportionately by all units in the combination. In effect you've joined with a lot of other homeowners to put together a fund for the few unfortunate families that will have a fire. But insurance is not the only way to handle the risk of loss.