Do I still need life insurance coverage? Not everyone does. For younger people with families, there's definitely a need. But if you have no one who depends on you financially, your home is paid off, you have sufficient investments, a good pension, you're in good health, and so on, you may no longer need coverage. Many older empty nesters carry life insurance they may not need.

One way to get at the issue is to ask yourself why you bought the insurance in the first place. Is that need still there? Has a new need arisen? For example, if your estate has grown enough that it faces estate taxes at your death, you may want to keep the policy to help pay the tax bills. (An irrevocable life insurance trust can be used to keep the death benefits out of your estate and thus not subject to estate taxes.) If your health is poor and you need money to pay medical bills, you may want to tap your policy's death benefits, before you die, through what's called "accelerated benefits." You may want to gift the policy benefits to a charity or give a larger inheritance for your children or grandchildren.

You'll also want to consider the tax consequences of dropping a policy. Term insurance, in which you pay only for death benefits, is easy to drop. Just cancel it. But the value that has built up in cash-value policies in excess of your premium payments may be taxable, and canceling the policy could cause severe tax consequences. (One option is to exchange it for an annuity.)

Is my coverage still sufficient? Assuming you still need coverage, is it sufficient? Have there been major life changes such as a higher paying job, marriage, the birth of a child, or taking in an elderly parent? These changes may require additional coverage. Or there may be reasons to reduce but not drop coverage, such as a child leaving home.

How is my policy performing? This is a question for holders of cash-value life insurance. For example, some people fund large cash values so that the earnings in the account will eventually pay for the premiums for the rest of the insured's life. But those earnings assumptions, such as interest rates and dividends, are based on projections by the insurance company that may not hold up over time. You could end up paying for premiums out of pocket years later if the cash value isn't sufficient to make the premiums "vanish," or you could end up losing the policy at a time you can least afford to do so.

To determine how the policy is performing, you'll need to first get an "in-force ledger statement" from the insurance company: This shows what premiums you've paid, current cashbuildup, and projections by the carrier as to expected cash-value growth. You may want your financial planner or an independent insurance advisor to do the actual analysis. Review these policies every year or two to be certain the results are meeting projections.

Are there less expensive alternatives? Is the policy fairly priced, or can you get more bang for your buck by switching policies? Competition has driven down term policy premiums, for example, and the return on competing cash-value policies can be significantly different. Your insurance needs may have grown dramatically (through marriage or having children) and you may want to switch from a cash-value policy to a term policy because you can get more death benefits for the same dollar premium. You also may want to replace your policy for certain estate planning purposes or because your health has dramatically improved and you can get a better deal elsewhere.

But don't switch a cash-value policy casually. Agent commissions and other up-front costs can eat away money that otherwise would go into the cash-value account. Pius, you'll probably have to pay higher premiums for the same coverage amount because you're older t hen when you bought the current policy. (Replacement of perfectly good policies by unscrupulous agents is called "churning," which is costly for consumers.) Low-load insurance carriers can usually reduce the impact of new up-front costs.

Is the insurance company healthy? You want a carrier that is financially sound. Consumers have lost money because insurance companies have gone bankrupt. Check several credit rating services such as A.M. Best, Standard & Poor's, and Moody's, to see how well your carrier is rated. If it's not doing well, you may want to consider changing companies.

May -30- 1997