Life insurance -- how much, what kind do you need?

Life insurance is not only a protection but potentially an important part of a person's estate. The problem is how to have enough but not too much. Probably as many spend too much on premiums as spend too little.

Insurance can become an obsession. Not everyone needs it. Other people overspend, putting into insurance income that could be invested more beneficially elsewhere.

Agents of some major companies say that many people are too gullible when they are approached by insurance salesmen more interested in making a sale than meeting the needs of their prospects. According to the insurance industry, Americans spent about $43 billion in 1981 on premiums. People need protection - but within reason. And they need to understand that it does not have to come from insurance alone.

In a 1980 study, the Life Insurance Marketing Research Association, a trade group, deplored the confusion among policyholders about the life insurance they held and what they could expect from it. The association's report to the industry said that the more agents tried to explain the complexities of insurance, the more confused prospects became.

Another study made in 1979 for the Federal Trade Commission found that 62 percent of those surveyed in one state, New Jersey, could not tell interviewers what kind of insurance they had - whether it was whole life, some form of term insurance, or a combination of other types of insurance.

A review of insurance coverage should be an integral part of planning for retirement years, but it should not be limited to those in their 40s and 50s, the ideal time to begin thinking of retirement years. Family needs change year to year. Insurance should be reviewed regularly by all.

Insurers advise that people get out their policies from time to time to read them over carefully. Most people haven't done this since they bought their policy. If you have questions, call your insurer. It is necessary to understand what a policy provides and perhaps more important to know what it doesn't cover.

If you ask about life insurance, be sure you get clear, understandable answers. Generally, agents are responsible and helpful. Be wary of those who say , ''You'd be better off switching to this. It will cost you more but it will be worth the difference.'' Perhaps it will be, but shop around.

If you want detailed comparisons of insurance and impartial advice, there are books from the Consumers Union and other such organizations. Your state insurance department may also have a free pamphlet. Here are some basics:

* Whole life insurance offers permanent protection. Premiums are usually payable for life and build up cash value. You can borrow on it to buy paid-up insurance or use it for investments.

* Term insurance covers the insured for a limited time. It is cheaper than whole life. Usually it is not automatically renewable. Medical reexaminations may be required each time. Premium rates rise with age. Term insurance builds up no cash value and often cannot be continued past age 65 or 70.

It is good in young families but in later life it is usually advisable to consider a change.

* Group insurance offered by most employers and under union contracts is term insurance. It terminates when the employee leaves the job but may be converted then to a personal term policy or whole life insurance.

* Renewable term policies have an option allowing holders to renew them without a new medical checkup. Rates will go up each time.

* Convertible term insurance allows a conversion to a whole-life, cash-value policy at any age without a physical. Such a policy is recommended for those in their middle years; switches are often made at or near retirement time.

* Endowment policies yield the face value of the policy in cash after a certain number of years. For example, a policyholder who pays premiums on a $50, 000 endowment policy payable at age 65 would be paid that amount when he or she reaches that age. Should the policyholder pass on before age 65, the beneficiary would receive the full amount.

* Combination policies offered by many companies offer some form of term insurance and investment possibilities such as tax-deferred annuities.

It is a good idea to keep these summary (if oversimplified) facts in mind when reviewing policies.