by Rana Williamson

Created on: December 16, 2009

Simply coming to terms with the necessity of having a life insurance policy may be the toughest part of acquiring the coverage. Especially during a recession, it's easy to dismiss the idea as too expensive or even to discontinue an existing policy in the interest of cost cutting. We like to tell ourselves we'll never die, but of course we will. The average funeral in the United States costs $12,000 to $15,000 with cremations at $1,700 to $2,000. What will your end of life expenses do to your loved ones' financial stability? Life insurance is about them, not you.

The best time to buy life insurance is before age 30 when you are in good health and have no pre-existing conditions. This will also allow you to lock in lower premiums, usually until age 65, thus saving significantly over the life of the policy.

There are two major types of life insurance coverage:

Whole Life Insurance

Whole life policies are in effect throughout the holder's life and are maintained with yearly premiums. Coverage can only be lost if the premiums are not paid. In addition to the traditional death benefit, whole life policies carry "living benefits." They have an accumulated cash value and many earn dividends. Consequently, the holder has the option to borrow against the policy, making the coverage an equity-generating vehicle.

Variations on whole life policies include:

- Traditional: These policies carry a set annual premium and minimum amounts for both cash value and death value. Most are dividend earning, with the dividends convertible to increase either value.

- Universal: Premiums for these policies vary annually, but are capped at a maximum level. There are minimums for guaranteed cash and death benefits. These policies are interest rather than dividend earning.

- Variable: These are high-risk policies appropriate only for financially sophisticated consumers. Their value depends entirely on the investments to which they are linked. This is not insurance for the average purchaser.

(Also be aware that newer life insurance policies exist which are specifically designed for conversion to long-term care benefits in the future. This option offers both the policy holder and his or her loved ones greater peace of mind and eases some of the burdens of making care decisions later in life.)

Term Life Insurance

Term polices are issued to cover a stated period or "term." They are less expensive, have fewer benefits, and do not grow in value. Typically the premiums will increase accorded to a pre-set schedule, for instance every five years. Typically term policies are taken out to supplement more permanent insurance instruments and are considered appropriate for "high need" periods of life. There is a guaranteed death benefit only and no additional attached value.

Anyone considering life insurance coverage should consider factors including:

- burial expenses,
- estate taxes,
- unresolved debts,
- educational expenses for underage dependents,
- and living expenses during a period of family transition.

Always research any insurance instrument thoroughly and consult with qualified professionals. Never accept a single quote. Comparison shop. Figure the total cost of the policy against living expenses to determine affordability. Sign nothing until you completely understand the terms of the coverage. Always remember that in taking out a life insurance policy, you are safe-guarding the future of someone you love and providing some protection for them when you are no longer there to do it yourself.

Learn more about this author, Rana Williamson.
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