Types

• There are two types of life insurance. Term life insurance provides death benefits in exchange for premium payments. Term life insurance lasts for a set number of years. When the term is up, the policy terminates. Permanent life insurance is designed to last for your whole life. The policy may or may not build cash value. A cash value is a cash reserve that builds up against the death benefit. The cash value represents a savings that you may use during your lifetime for any purpose.
  
  

Purpose

• Your life insurance policy choice will be determined by your purpose for buying the policy. If you need a short-term contract to cover a short-term loan, then a term life policy is ideal for you. If you think you will need a policy that will last for your entire life, then you'll want a permanent life insurance policy.
  
  

Benefits

• Determine what benefits you want to get out of the policy. The benefits of a policy may include various riders (modifications to the original policy) that allow you to access the cash value of your policy in the early years of the policy, or that allow you to access the death benefit if you need nursing home care. Some riders pay for your policy premiums if you become disabled or even unemployed.
  
  

Size

• The size of the policy death benefit is determined largely by your financial liabilities, or how much you want to cover. Add up all of your debts and other financial liabilities (i.e., a future income for your spouse), and this will determine your death benefit needs. If your life insurance policy death benefit increases every year, then you won't need to worry about adjusting the policy for inflation. If the policy death benefit does not increase every year, then you will need to adjust the death benefit for inflation. To do this, you need to adjust the death benefit upward by the rate of inflation you think will occur over the life of the policy.
  
  

Expert Insight

• When purchasing a life insurance policy, you may need to consult a life insurance broker. An insurance specialist can help you with the calculations involved in purchasing the right amount of death benefit. He can also guide you toward the type of policy that will be best for your particular situation as well as help you fill out the life insurance application.