Leave Behind a Legacy - Not a Debit Sheet

You purchase coverage for a specific price and for a specified period, and if you die during that time, your beneficiary receives the value of the policy. There is no investment component.

Similar to term, but you purchase the policy to cover your "whole life," not just a set period of time. Premiums remain level throughout the life of the policy and the insurance company invests at least a portion of your premiums. Some firms share investment proceeds with policyholders in the form of a dividend. Many companies will offer "a relatively low guaranteed rate of return," but in reality, pay at a rate in excess of the guarantee.

You decide how much you want to put in, over and above a minimum premium. The insurance company chooses the investment vehicle, which is generally restricted to bonds and mortgages. The investment and the returns go into a cash-value account, which you can apply against premiums or allow to build. With some policies, sometimes called Type I or Type A, the cash account goes toward the face value of the policy on the death of the policyholder. With a second variety, sometimes called Type II or Type B, the beneficiary receives the face value of the policy plus all or most of the cash account. While Type II is meant to provide a partial hedge against inflation, it demands higher premiums than Type I as you get older. A variation of a universal policy, often called universal variable life, allows policyholders to choose investment vehicles.

With the average cost of funerals being around $8,000 (according to the National Funeral Directors Association), you can help to cover those expenses with final expense insurance, also known as burial insurance. It'll help cover funeral arrangements (a casket, embalming, flowers, etc.), burial costs (cremation, a burial plot, etc.) and outstanding medical, legal or credit card debt.