Life insurance is a lucrative business for insurance companies. But it also plays a vital role in protecting your family from financial devastation if something happens to you. One question that many people have is whether you still need the protection that life insurance gives -- and when the time comes that you no longer need your policy, what's the next step to make the most of the money you've already spent for your coverage?

This month's new issue of Rule Your Retirement includes some tricks of the trade when it comes to life insurance. Rather than simply running for the hills, you might end up with a financial windfall if you take a few minutes to check out the various options you have for your policy.

You can't take it with you
As Foolish retirement expert and financial planner Robert Brokamp discusses in the latest installment of his retirement newsletter, changing circumstances in your life also have an effect on your life insurance needs. For instance, when you start a family or have more children, then you may well need more insurance coverage to make sure your survivors have enough money to take care of their financial needs if you die. On the other hand, as your children grow up and start their own adult lives, then your insurance needs may fall or even go away entirely.

But dealing with life insurance can be complicated. For instance, if you're trying to get coverage, you typically have several different choices. Insurers including Aetna (NYSE: AET), Aflac (NYSE: AFL), and Prudential (NYSE: PRU) offer products that let employers offer group life insurance as a fringe benefit to employees. However, you can also usually get coverage on your own by going directly to an insurance company -- and rates can be substantially different, depending on which way you go.

In addition, navigating different types of insurance is tricky. Basic term life is cheap, but if you stop paying premiums, the coverage goes away entirely. Other types of insurance, such as whole life, cost more but include an investment component that is tax-favored -- but associated fees can be high.

Don't lose everything
You might think that dealing with the situation where you no longer need coverage would be easier. But here, the options are even more varied:

  • You can stop paying premiums and surrender your policy. If it has any cash value, then you'll get a check.
  • You can borrow money against your policy, with any outstanding balance deducted from your death benefit after you die.
  • You can sell it to a third-party investor. It may seem morbid, but companies like Life Partners Holdings (Nasdaq: LPHI) make a business of buying and selling insurance policies, offering viatical settlements to critically ill policyholders. Moreover, with "death derivatives" perking up interest among Wall Street players Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM), life insurance policies become a counterbalance to longevity risk-based products.
  • You can trade your policy for an annuity. Not every insurance company offers the types of annuities you might want -- Genworth Financial (NYSE: GNW), for instance, stopped selling variable annuities earlier this year. But the annuity you trade for can come from a different insurer, so if your insurance company has no offerings or sells only high-cost annuities, you can seek out alternatives from lower-cost providers.

All those options are worth considering, because each can help you end up with more money in certain situations. If you don't look into all the choices you have, you might ultimately make a costly mistake.

What's the right move?
Brokamp's quick look at insurance coverage issues gives a good primer, but the true value of the Rule Your Retirement service lies in its resources. With supporting information about annuities, long-term care insurance, getting income from your policy, and creating an insurance action plan, you'll have a to-do list to take care of your insurance needs in no time. Best of all, you can get it all with a free 30-day trial -- it includes current and past newsletter issues, as well as the full suite of resources to help you with every aspect of your retirement.

Protecting your loved ones financially is a big responsibility, but life insurance can give you a way to get that job done well. Just make sure you make smart moves with your policies, both when you buy them and when you no longer need them.

Get started today with a 30-day trial of Rule Your Retirement -- it's free and there's no obligation to subscribe.

Fool contributor Dan Caplinger believes in self-insurance wherever possible. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Aflac and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Aflac. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy protects you.