Once you figure out your needs, it's time to choose the type of policy that makes most sense for you.

Term insurance

Term insurance is relatively easy. You can buy term insurance that stops after 10 or 20 years, or that can be continued beyond age 70. You can choose for your premium to increase each year (annual renewal term) or to remain at the same amount for a fixed number of years.

Most term policies offer both a current payment schedule and a maximum rate for each year. With some policies, the company reserves the right to increase premiums if company costs increase. With others, your health may be a factor in determining rates. At certain "re-entry" ages, you may have to prove your good health in order to keep the lower premium.

Most term policies are convertible to permanent ones without evidence of good health.

Types of permanent life

The real wild card in terms of price is permanent insurance, because most policies have guaranteed and nonguaranteed portions. There are three main types of permanent insurance.

Traditional whole life: This type offers the most guarantees. The annual premium is guaranteed, and there are minimum guaranteed cash values and death benefits. Most whole life policies these days are "participating," meaning that the dividends they earn can be used to increase the cash value and/or death benefits, decrease the premiums or be refunded in cash.

If you are a conservative investor and also have trouble saving, traditional whole life makes sense.

Universal life: If you need premium flexibility, especially in the early years of the policy, universal life is for you. Universal life insurance was developed in the 1970s, when insurance-industry regulations changed to allow insurers to be more competitive with other financial-services providers.

Universal life insurance is more flexible than traditional whole life, because premiums can vary from year to year and sometimes can even be skipped. Universal life has maximum guaranteed premiums and minimum guaranteed cash values and death benefits. Instead of dividends, universal life policies earn interest at the credited interest rate determined each year.

Variable life: If you consider yourself a knowledgeable and risk-accepting investor, check out variable life. Variable life insurance has the fewest guarantees and therefore offers the greatest potential for cash-value increases.

There are required guaranteed annual premiums and a guaranteed minimum death benefit. However, there is no guaranteed cash value, and you have to select the investments for your policy.

Buyers typically are offered a variety of mutual fund accounts, ranging from money market funds to aggressive growth funds.

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Life insurance should never be purchased solely as an investment. After all, some of your premiums are being used to buy death-benefit coverage and to cover other expenses (including sales commissions). Life insurance should not be purchased on children as a way to save for college, and make sure you (and your spouse) have all the coverage you need on yourselves before you buy any coverage on a child.

When you make your purchase, avoid all of the fancy riders, but do consider the waiver of premium, which suspends your premium payments but keeps the policy in place if you become disabled.

If you find that you cannot afford all of the permanent insurance you have decided you need, consider a combination term-plus-permanent policy. You can quickly compare quotes online.