(MONEY Magazine) – In 1993 alone, more than 12 million Americans will spend an estimated $10 billion in premiums on newly issued life insurance policies. Trouble is, it's a fair bet that most of those buyers won't really know what they are buying, or why. ''Getting a handle on life insurance today is a lot like trying to roller-skate in a room lined with marbles,'' says fee-only insurance adviser Peter Katt of West Bloomfield, Mich. Not only must consumers contend with a maze of policy types, indecipherable jargon and often wacko calculations but they must also avoid a distinctly '90s phenomenon: linking up with a weak or terminally ill insurer. In November, $1.3 billion Fidelity Mutual Life of Radnor, Pa. became the 35th life insurer to fail since January 1991. To avoid tripping up when you shop for coverage, get answers to these questions from a carefully selected agent recommended by friends or advisers you trust:

< What type of insurance best suits my needs? Simply deciding that you want life insurance is akin to going to the Louvre just to see some art. You'll walk away confused and exhausted unless you first narrow your choices. An agent can help you begin buying coverage wisely by assisting in the selection of the most appropriate broad type of insurance for you: term or permanent life. With term, you fork over a premium and the insurance company agrees to pay your survivors a death benefit if you die while the policy is in force. The cost of term insurance typically rises annually as you age. A 35-year-old male who doesn't smoke might pay $300 a year for $250,000 of term coverage, but by age 55 the policy could cost him about $2,000. (Ask for a policy that guarantees you'll be able to keep it regardless of changes in your health.) With permanent insurance -- which includes whole life, universal life and variable life -- a portion of your annual premium goes into a tax-deferred savings fund known as the cash-value account. Your cash value earns interest at a rate determined by the insurer that's generally tied to yields on high- grade long-term bonds, now about 8%. Rates on variable accounts fluctuate with the stock and bond markets. Unlike with term, permanent premiums generally don't rise after you buy the policy. The downside: Premiums are four to nine times higher than initial premiums for comparable term contracts, because you're funding the savings account and the commissions are steeper. Cash-value insurance offers some estate-planning advantages, but ''the key purpose of life insurance is to protect your family from a loss of income,'' says Rick Nelson, a discount life insurance broker in Northbrook, Ill. ''If investing is your goal, buy a mutual fund instead of permanent insurance.''

How much life insurance do I need and why? You ought to have enough coverage so your beneficiaries can pay their present and future bills -- from today's ordinary monthly living expenses to the cost of college through the senior year of your youngest child. One rule of thumb: Buy life insurance worth about five to seven times the gross salary you are insuring. But that's merely a starting point. Subtract from that figure the income your survivors will receive when you die, such as from life insurance coverage you have at work, as well as income from your investments and savings. The American Council of Life Insurance's (800-942-4242) free pamphlet A Consumer's Guide to Life Insurance includes a worksheet to help you estimate the coverage you need.

What's the financial strength rating of the insurer you're considering? Indiana University insurance professor Joseph Belth suggests that safety- conscious shoppers stick with companies that get upper-deck ratings from at least two of the four major grading agencies. That's an A++ from A.M. Best; AAA or AA+ from Duff & Phelps; AAA, AA+ or AA from Standard & Poor's; and Aaa, Aa1, Aa2 or Aa3 from Moody's Investors Service. Belth advises that the insurer also should not have any grade below A+ from Best, AA from Duff & Phelps, AA- from S&P, or A1 from Moody's. More than 80 companies pass the Belth test, including $110.8 billion Metropolitan Life, $42.7 billion New York Life and $35.7 billion Northwestern Mutual.

What assumptions are used to calculate policy illustrations? The policy illustration is a key sales tool for agents recommending cash-value policies. A computer printout shows the potential value of the policy's savings component in, say, 20 years. But beware. Recently, the Society of Actuaries found that officials at 53 of 55 insurance companies surveyed said that, industrywide, policy illustrations might be misleading. For example, some illustrations now assume that cash-value accounts will earn an average of 10% a year for 20 years, even though the kinds of bonds they invest in now generally yield barely 8%. Quiz the agent about the assumptions in the calculations to determine whether the illustrations were drawn by realists or Dadaists. For example, ask the agent to verify that the interest-rate figures are net of expenses, since that's what you'll really earn. Tell the agent to show you what would happen to your cash value if the insurer earned two percentage points less than anticipated, just to be safe. Also get a worst- case scenario -- what the cash-value buildup would be if the insurer ends up paying the mere guaranteed rate, typically 4% to 5%.

Will the premiums go up or down, and if so, by how much? If you're interested in a term policy, make sure the agent shows you its projected annual cost five, 10 and 20 years into the contract and the maximum charge in each case. A policy with the lowest initial premium may cost more as the policy ages than a similar policy with a higher initial charge. Your agent may recommend a level- term policy with set premiums for an extended period, such as 10 years. Since the premium is basically an average of the cost for the entire period, * you'll pay more in the early years of a level policy than with the traditional annual renewable term. So go for level term only if you expect to keep the coverage for the entire period. As for premiums on permanent policies, agents may tell you that you can make them vanish after just five or 10 payments by tapping your cash-value account to pay for them. What you may not hear is that this vanishing act will occur only if the insurer's expectations for your cash-value growth come true. Make sure that the agent explains how many extra premiums you'll need to pay if your savings account doesn't grow as quickly as forecast. And if you can't get a straight answer, make the agent disappear.