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Most Americans understand that life insurance is an important part of their financial portfolios. Simply put, the vast majority of families do not have enough assets to afford to stay in their home or put their kids through college if a primary wage earner dies. Life insurance provides a safety net to help families through what can otherwise be a financially devastating transition.

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While there are only two main types of life insurance—term and permanent—the advantages and disadvantages of each are not always clear, and you'll often receive different opinions about which is best depending on whom you talk to.

Below you'll find simple descriptions of each type of life insurance, as well as information about how to figure out which one is right for you.

Term Life Insurance Term life insurance covers you for a period of time you select (for example, 10 or 20 years) and pays benefits only if you die during the time you're covered. Term life is often referred to as temporary insurance. These policies do not accumulate any cash value, which means if you do not die within the time you're covered, your estate does not collect any money from the policy when it ends. However, most life insurance companies offer the ability to convert your term life policy to a permanent policy under certain circumstances. With permanent policies, a portion of your premium goes to building cash value.

Benefits of Term Life Policies Term life insurance typically costs less than permanent insurance, and proceeds are not taxable to your beneficiaries. They are an effective supplement to employer-sponsored life plans, or older policies that may be inadequate due to inflation. And while in effect, you typically can convert to a permanent policy without evidence of insurability (that's an official statement proving you're an insurable risk).

Permanent Life Insurance Permanent life insurance provides lifetime protection, and lets you build cash value over time. You can generally use your cash value to take out a loan for emergencies, fund a major purchase, or send your children to college. Your cash is "invested" according to the type of permanent insurance policy you buy, but can generally earn interest or dividends similar to a savings account or be invested in securities or other investment vehicles.

Benefits of Permanent Life Insurance With permanent life insurance, your premiums remain constant over your lifetime, and all permanent life insurance offers a guaranteed death benefit that is not taxable to your beneficiaries. Also, some insurance companies will advance death benefits to pay for nursing care or terminal illness expenses. You can accumulate cash value, tax deferred, though you are not necessarily guaranteed a cash value. Also, you can withdraw or borrow an accumulated cash value.

How Much Life Insurance Coverage Do You Need? Your life insurance needs will vary depending on your personal circumstances and your stage in life. This means that an unmarried person who doesn't own a home may not need as much life insurance, if any, as a homeowner who is married and has children. An effective exercise is to ask yourself how much coverage you need to make sure your dependents can continue to live their current lifestyle.

All insurance companies are willing to help you determine what type of coverage is best for you and how much you need. But be aware that not all agents and/or insurance companies are able to give you truly independent advice. It helps to research the different types of policies out there as much as possible so you're well-armed with information before you begin asking for quotes.
If you're ready today to look at term life insurance quotes, InsWeb.com provides free quotes from multiple providers—and you only have to fill out a single form.

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