This guide can help you when you shop for life insurance. It will provide tips on how to do the following:

• Find a policy that meets your needs and fits your budget
• Decide how much insurance you need
• Make informed decisions when you buy a policy

Important Things to Consider

Review your own insurance needs and circumstances. Choose the kind of policy that has benefits that most closely fit your needs. Ask an agent or company to help you.

Be sure that you can handle the premium payments. Can you afford the initial premium? If the premium increases later and you still need insurance, will you still be able to afford it?

Don't sign an insurance application until you review it carefully to be sure all the answers are complete and accurate.

Don't buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.

Don't drop one policy and buy another without a thorough comparative study of the new policy and the one you have now. Replacing your insurance may be costly.

Read your policy carefully. Ask your agent or company about anything that is not clear to you.

Periodically review and update your life insurance program with your agent or company to match it to your changing income and needs.

Buying Life Insurance

When you buy life insurance, you want coverage that fits your needs.

First, decide how much you need, for how long, and what you can afford to pay. Keep in mind the main reason for buying life insurance is to cover the financial effects of unexpected or untimely death. Life insurance can be one of many ways you plan for the future.

Second, learn what kinds of policies will meet your needs. Pick the policy that best suits your unique situation.

Finally, choose the combination of policy, premiums, and benefits that best meets your needs. You may want to emphasize protection in case of early death, benefits in case of long life, or a combination of both.

It makes good sense to ask a life insurance agent or company to help you. An agent can help you review your insurance needs and give you information about the available policies. If one kind of policy doesn't seem to fit your needs, ask about others. Remember, you are responsible for choosing the coverage that is right for you. Only you can decide which company and product will meet your needs.

This guide provides only basic information. You can get more facts from a life insurance agent or company or from your public library.

What About the Policy You Have Now?

If you are thinking about dropping a life insurance policy, here are some things you should consider:

• If you decide to replace your policy, don't cancel your old policy until you have received the new one. You then have a minimum period to review your new policy and decide if it is what you wanted.
• It may be costly to replace a policy. Much of what you paid in the early years of the policy paid for the company's cost of selling and issuing the policy. You may pay this type of cost again if you buy a new policy.
• Ask your tax advisor if dropping your policy could affect your income taxes.
• If you are older or your health has changed, premiums for the new policy will often be higher. You will not be able to buy a new policy if you are not insurable.
• Your current policy may confer upon you valuable rights and benefits that a new policy might not.
• If the policy you have now no longer meets your needs, you may not have to replace it. You might be able to change or add to your existing policy to get the desired coverage or benefits.
• At least in the beginning, a new policy might not pay benefits for some causes of death, whereas your current policy would pay.

In all cases, if you are thinking of buying a new policy, check with the agent or company that issued your current policy. Before replacing your policy, ask your agent or company for an updated illustration of benefits. Check to see how the policy has performed and what you might expect in the future, based on the amounts the company is paying now.

How Much do You Need?

Here are some questions to ask yourself:

• How much of the family income do I provide? If I were to die early, how would my survivors, especially my children, get by? Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?
• Do I have children for whom I'd like to set aside money to finish their education in the event of my death?
• How will my family pay final expenses and repay debts after my death?
• Do I have family members or organizations to whom I would like to leave money?
• Will there be estate taxes to pay after my death?
• How will inflation affect future needs?

As you decide what you have to accomplish to meet these needs, consider the life insurance you have now, including any group insurance where you work or veteran's insurance. Don't forget Social Security and pension plan survivor's benefits. Add other assets you have--savings, investments, real estate and personal property. Which assets would your family sell or cash in to pay expenses after your death?

What is the Right Kind of Life Insurance?

All policies are not the same. Some policies give coverage for your entire lifetime, and others only cover you for a specific number of years. Some build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living. Your choice should be based on your needs and what you can afford.

There are two basic types of life insurance: term insurance and cash value insurance.

Term Insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance offers the largest protection for your premium dollar. Term insurance generally has lower premiums in the early years, but it generally does not build up cash values that you can use in the future. You may combine cash value life insurance with term insurance to match the period when you will have the greatest need for life insurance to replace income.

You can renew most term insurance policies for one or more terms even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase.

You may be able to trade many term insurance policies for a cash value policy during a conversion period--even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.

Cash Value Life Insurance is a type of insurance where the premiums charged are higher at the beginning than they would be for the same amount of term insurance.

Whole Life Insurance covers you for as long as you live if your premiums are paid.

Universal Life Insurance is a kind of flexible policy that lets you vary your premium payments.

Variable Life Insurance is a kind of insurance where the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy.

As with all decisions, "Look before you leap!" Ask lots of questions. Remember, "Haste makes waste."