Most people buy life insurance to take care of their loved ones and replace income that would be lost if a wage earner passes away. But life insurance is also used for estate planning, retirement funding, cash accumulation, and the transfer of wealth to beneficiaries. There are several types of life insurance on the market today.

The cost of a policy can vary tremendously as they have many different features and options. Here's a rundown of the major types of life insurance. There are also differences between insurance companies, and not all companies will charge the same price for the same type of policy. So it's good to compare insurance rates from different insurers to find the lowest rate.

Term Life Insurance

Term life insurance covers you for a period of time you select (for example, 5 or 10 years) and pays out benefits only if you die during the time you're your policy covers. Term life is often referred to as “temporary insurance.” These policies do not accumulate cash value, which means if you do not die within the time you're covered, there is no cash value when it ends. However, most companies offer conversion privileges to permanent policies, where you can turn your term life policy into a "permanent" one. With permanent policies, a portion of your premium builds as a cash value with interest.

Benefits of Term Life

Term life insurance is generally less expensive than permanent insurance. Term life insurance plans are a good supplement to employer-sponsored life plans, or policies that may be inadequate due to inflation. While in effect, you can usually convert it to a permanent policy without evidence of insurability (an official statement proving you're insurable). You can compare term life insurance quotes for free at InsWeb.com.

Permanent Life Insurance

Permanent life insurance provides protection for your lifetime, and allows you build cash value over time. You can use your built up cash value to take out a loan for emergencies, fund a major purchase or cover any unexpected expense.

Permanent Life Insurance Benefits

With permanent life insurance, your premiums remain constant over the course your lifetime. Death benefits are paid when you die. Also, many insurance companies will advance death benefits to pay for nursing care or a terminal illness expenses. These features are also available on some term life policies. Permanent life policies accumulate a cash value. Also, you can also withdraw or borrow against your accumulated cash value.

How Much Coverage Do You Need?

Your life insurance needs may vary depending on what stage of life you are in. For instance, an unmarried person who doesn't own a home may not need as much life insurance as someone who is married with children would. No one wants to leave financial trouble for loved ones. You should ask yourself this question: "How much money would my loved ones need to continue living the lifestyle to which they are accustomed?”

Before you get into the basics of life insurance policies, take a look at the company that is writing it. Is the life insurance company financially secure? Companies such as AM Best and Standard and Poor's rate insurance companies on the basis of their financial situations. The more financially sound the company is, the less chance your beneficiaries will have any problems getting the funds they are entitled to.