Sep. 7--No one wants to consider the worst-case scenario, but being financially prepared can make the death of a loved one easier to endure.

Life insurance can provide income for dependents, pay final expenses and create an inheritance for a person's heirs in the case of premature death, according to the Insurance Information Institute.

Many people, however, either don't have life insurance or don't have adequate coverage.

If you're buying insurance, it's no time to be cheap, said Alison Love, the executive director of the South Carolina Insurance News Service.

"So many times, people get too focused on saving money and not enough on the quality of service the insurance company should give them. When you buy insurance, you're buying coverage for when something bad might happen," Ms. Love said. "You want to make sure the company, policy and coverage are going to be adequate for your needs."

There are two main types of life insurance -- term and whole life.

Term insurance is the simplest form of life insurance. It's usually cheaper for younger people, but it's good for only a term, usually one year to 30 years, explains the Insurance Information Institute.





These policies are generally based on a person's age and health when the policy starts. As the insured get older, they are subject to higher rates when they renew.

Term insurance should be chosen if a person needs life insurance for a specific period of time. For instance, such a policy is beneficial for people who have young children and want to ensure their college education or want to repay a debt in a particular amount of time. Also, term insurance is helpful for people on a limited budget.

The most popular term insurance is 20-year term. Most companies will not sell term insurance to someone for a term ending after the person's 80th birthday, according to the Insurance Information Institute.

The basic types are level term and decreasing term. With the more common level term, the death benefit remains the same throughout the duration of the policy.

With decreasing term, the death benefit is reduced, usually in one-year increments, for the duration of the policy.

Whole life or permanent insurance pays a death benefit whenever the person dies, regardless of age. The premiums for permanent policies are typically higher than those for term insurance but remain the same for a lifetime.

People should consider permanent if they need insurance for a lifetime or "want to accumulate a savings element that will grow on a tax-deferred basis." The policyholder can borrow from permanent insurance funds, according to the Insurance Information Institute.

There are three types of whole life or permanent insurance -- traditional, universal life and variable universal life.

With traditional whole life, the death benefit and premium stay the same for the life of the policy.

With universal life insurance policies, the insured person may increase the death benefit based on a medical exam. The person also can save money through a "cash value" account which earns a money-market rate of interest.

Variable universal life provides death protection with a savings account that can be invested in stocks, bonds and money market mutual funds. The value of the policy grows faster, but there is more risk, according to the institute.

As part of employee benefits, many companies offer group life insurance, which is usually cheaper than individual policies.

Charles F. Smith, a financial adviser at Ameriprise Financial Services Inc. in Augusta, said people should be concerned about the financial situation of their loved ones in the event of premature death. For instance, how will your family pay the debts that have been incurred?

"If you have sufficient assets that may not be a problem. The truth is, very few people have enough money to be comfortable doing that," he said.

He said people should minimize the financial impact of a death as much as possible. If the family breadwinner dies, the survivors often won't have enough income to make house payments, for example, he said.





"Life insurance can provide some liquidity so that those funds can be available," Mr. Smith said.

A person should buy enough life insurance so that when it's combined with other sources of income, it will "replace the income they generated and offset additional expenses such as hiring a tax preparer, funeral costs or relocation costs," according to the institute.

They also will need to provide enough funds to replace "hidden income," such as an employer's subsidy on a health insurance premium or a matching contribution to your 401(k) plan.

Life insurance also can provide cash to be divided among heirs in lieu of selling property to settle an estate.

"When you're selling property under a forced situation, you're almost certain not to get fair market value for it," Mr. Smith said.

Ms. Love offers some basic tips for buying an insurance policy.

"It's always a good idea to ask your family, friends and neighbors who they have life insurance with," she said.

Their satisfaction level with the company might be an indication of whether the company is a good fit for you, she explained.

It's also important to determine whether an insurance company is financially solvent or if complaints have been filed against it, she said.

Reach LaTina Emerson at (706) 823-3227 or latina.emerson@augustachronicle.com.



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