Your 5-minute guide to life insurance

There's no need to dwell on your demise, but you should use these 18 tips to make sure your loved ones would be taken care of. Get the right policy, and don't pay too much.

Life insurance provides families with financial security should a spouse or parent die. Once you have dependents, the question "What if you got hit by a bus?" requires serious consideration. (See the video "Preparing for the worst.")

First, the basics

There are essentially two types of life insurance: term and whole. You can apply for a policy online, seek help from a financial planner or buy through an agent.

A term policy covers periods of one to 30 years. When the insured dies, the face amount of the policy is paid to the beneficiary. Term life has no savings component. If you haven't died by the end of the term, you don't get any money back. For most Americans ages 20 to 50, a term policy is the best and simplest option. (See "Term or whole life?")

In the past, rates skyrocketed if you were older than 40. But now good rates are available in your 40s and 50s if you're in good health. Insurers today can better estimate risk by taking into account everything from cholesterol levels to family history. (See "Suddenly, life insurance is cheap.")

A whole-life policy, also called permanent life insurance, not only protects you from the day you purchase it until you die, but it also includes an investment in bonds, money markets or stocks. The policy builds cash value that you can borrow against. The three most common types of whole-life insurance are traditional, universal and variable. (See "The debate over term vs. permanent life insurance.")

The downside of whole life: It's expensive because part of the money is put into a savings program, and it typically comes with high fees and commissions. (See "When it pays to consult an insurance pro.")

If you already have a policy but think you are paying more than you would had you opened it recently, shop around. (See "Refinance your life insurance.")

How much is enough?

Deciding how much really just depends. If you're single with no dependents, you probably don't need any at all. The key time to get life insurance is when you have children. In addition, get coverage if you have a spouse who doesn't work. (See the video "How much life insurance is right?")

A rule of thumb for life insurance is five to 10 times your annual salary. MSN Money's estimator of life insurance needs can help you decide how much coverage you should have. (Also see the video "A lifetime of life insurance.")

Consider these tips:

• Don't buy life insurance for young children. It's largely wasted because you're not replacing income. (See "Insurance plans you can avoid.")

• Look at your budget before committing to a premium. When you buy life insurance, you have to keep paying the premiums throughout the term, no matter what, or lose your coverage. (See "Your 5-minute guide to budgeting.")

• Don't let a policy lapse if you plan to buy another one at some point. A high number of lapses could indicate financial instability. (See "The effects of lapsing on your policy.")

• You might be able to drop your life insurance if your children are grown and your spouse has income.

• An insurance policy is only as good as the company that backs it, so check out a company's financial rating before signing on. Avoid advisers who say the ratings are unimportant or unavailable.

• If you are single and simply don't want your relatives burdened with the cost of a funeral, consider contributing to a Totten trust savings account. (See "Plan -- and pay for -- your own funeral.") Should you take out a life insurance policy later on, you could use all your contributions to the trust, as well as the interest earned, for something else.

How to get a deal

The price you pay depends on your age, health, habits and even hobbies, but there are ways to reduce your rates. You'll likely need a medical exam before being approved for the policy, to rule out risk factors. (See "The lowdown on life insurance medical exams.")

And it might not hurt to check out MSN Money's life-expectancy calculator.

As with everything else, it pays to shop around and negotiate rates. Quotes are available at Web sites such as Insure.com and AccuQuote.com.

Here are more ways to cut costs:

• Ask about discounts. Don't expect your insurance agent to go out of his way to trumpet them.

• Quit smoking and lose weight. You could cut your rates by as much as 50%. (See "10 ways to save on life insurance.")

• Buy coverage in bulk, particularly in increments of $250,000. Oddly, that sometimes costs less.

• Understand how insurance agents and commission-only financial planners get paid: They don't make money unless they sell insurance products. Agents also make lower commissions on term-life policies, so look out for maneuvers to get you to buy something else.

• Clean up credit issues before applying for insurance, because most companies base rates partly on credit history.

Stay ahead of the curve

Life insurance is not a one-time-only deal, so keep these things in mind:

• Don't depend solely on life insurance offered through your employer. You can't count on keeping it should you lose your job or become disabled and can't work. (See "5 life insurance blunders to avoid.")

• Watch for hidden fees, including those for paying premiums by direct withdrawal from your checking account.

• Periodically review your policy. The one that fit your family five years ago might not be the best choice today.

• Life insurance settlements, in which policyholders sell their insurance to investors, are a growing trend. But shop around first, beware of high commissions and know the tax consequences of selling your policy. (See "Sell your life to a stranger.")

• Store your policy documents in a safe place, such as a fireproof security box or safe-deposit box.

• To make things easier for your survivors, consider putting your passwords in the same place. (See "Don't take your passwords to the grave.")

• And while making these provisions, be sure your beneficiaries can locate your 401(k). (See "You're dead: Where's your 401(k)?")

Finally, as difficult as it is, talk with your loved ones about your insurance plans. At the very least, tell them which company holds the policy. If they don't know about it, they might never get the money -- and the security -- you wanted them to have.