"How to Buy Life Insurance" by Forbes.com

While Americans are out shopping for holiday gifts, few are likely to pick life insurance policies as stocking-stuffers. The percentage of American households with individual life insurance policies has hit a 50-year low of 44%. Blame unemployment, confusing products, reports of denied claims and high commissions among the declining ranks of dedicated agents.

But many people who are going without life insurance may really need it. Among the 35 million Americans households that have no life insurance, 11 million include children under age 18. Of those 11 million, 40% say they'd have trouble paying everyday bills if the breadwinner were to die today. That's according to LIMRA, an insurance industry research outfit, which based its study on a survey of 3,766 households.

To be sure, if you don't have life insurance, you shouldn't necessarily rush out and get it. Many senior citizens, for example, have no need to heed TV ads urging them on. William Wixon, owner of Wixon Advisors in Maple Grove, Minn., says many of his clients no longer have children or other financially dependent family members, so he advises them to let their life insurance policies lapse.

In Pictures: How To Buy Life Insurance

Who should consider coverage? Relatively young breadwinners with mortgages, college tuition or other bills that will require a back-up plan if they are no longer around to cover them. If you're fortunate enough to have substantial assets, life insurance can also help cover estate taxes for your heirs.

"To me your insurance is an aspect of your overall financial plan," says Roger Wohlner, a fee-only financial advisor in Arlington Heights, Ill. "Ideally you should look at it annually, or every couple of years, and see if circumstances have changed."

Instead of planning ahead, many people are prompted by a major life event to consider buying life insurance. Simply figuring out how much coverage you need can be challenging. Insurance agents often recommend coverage that will replace the equivalent of 15 times your annual income. Wixon says he advises clients to consider buying enough coverage to replace 3.5 times annual incomes, plus outstanding debts.

Once you decide on an amount, the next question is what form of life insurance to buy. Many financial planners recommend sticking with term coverage. This provides insurance for a set number of years, usually in exchange for fixed premiums, which can be paid monthly, quarterly or annually. A 40-year-old breadwinner with young children, for example, might decide on a 15- or 20-year term to ensure that the kids' expenses are covered until they're financially independent.

Permanent insurance is a far more complex product that combines life insurance with some form of savings plan and is often designed to stay in force for life. Wohlner, like many advisors, recommends buying insurance as insurance--meaning a term policy--rather than as an investment.

When does permanent insurance make sense? Because of life insurance's special status under tax law, permanent policies are sometimes used by wealthy individuals as an estate-planning tool. If this appeals to you, make sure to get advice from an unbiased planner rather than from an insurance agent, who is paid for selling you the policy.

It's also important to buy life insurance from a financially sound underwriter to ensure they'll be in business at least as long as you are. Check out the company's ratings from A.M. Best or another rater.

The process can be intimidating, but with premiums having fallen recently, now might be an opportune time to plan ahead. Here's a step-by-step guide to what you need to know
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