Planning for death isn't anyone's idea of a good time--but at least Linda Johnson Robb was able to joke about it. At the funeral for her mother, Claudia "Lady Bird" Johnson, who died in July, Robb told mourners that the former First Lady "wanted to hold on until 2010, so we wouldn't have to pay any estate taxes," The Washington Post reported. Federal estate taxes disappear entirely that year, before returning in 2011. "Oh, durn," Robb said to the chuckling crowd.

Your heirs might utter choicer words than "oh, durn" if you fail to develop an estate plan. Estate taxes come due nine months after a death--not much time if your heirs need to settle a largely illiquid estate. One potential solution: Buy a permanent life insurance policy that will cover estate taxes and provide your heirs with immediate cash, so they don't have to unload your business in a fire sale.

When many people think about life insurance, they think about term policies, which are often bought by parents in case they die before their kids have grown up. As long as you consistently pay premiums, term life insurance pays out if you die within a given period, ranging from one to 30 years. When you're young and healthy, it's a great deal--a term policy can cost one-eighth as much as permanent insurance, says David T. Phillips, CEO and owner of Estate Planning Specialists in Chandler, Arizona. For estate planning, however, many financial advisers recommend permanent insurance, a life insurance policy that doesn't expire.

Permanent life insurance has gotten a bad rap. Many permanent policies include a guaranteed death benefit, like term policies. But they also have another element: a riskier "cash value account," which isn't fully guaranteed. In the 1980s and early 1990s, insurance companies often used unrealistic projections to estimate how much cash value accounts would grow. That's changing, says Phillips, thanks in part to lawsuits in the mid-1990s. Insurance companies now use more rational projections, he says, and offer more products that include a full guaranteed death benefit.

But permanent life insurance policies are still expensive and difficult to understand. For most people, life insurance isn't a great investment; if your primary goal is to get a good return, you'd almost certainly do better in a low-fee mutual fund. But it can be a valuable part of an estate plan, especially if you put it in a trust so it won't trigger estate taxes. If you want to tackle the tricky world of permanent life insurance, here's a starter guide.

1. Pick a policy There are three types of permanent insurance: whole, universal, and variable. Whole is the most conservative and generally the most expensive. The cash value account is tied to the performance of the insurer's investments and usually includes some guarantees. Universal is riskier; your mortality projection is adjusted every year, so as you grow older, your premiums could rise. Variable policies are the riskiest, because the cash value account is invested in the stock market, and you control the investments.

You may want to purchase a second-to-die policy, a single policy that covers both you and your spouse, to plan for estate tax liability, says James O. Mitchel, a vice president at LIMRA International, an association of insurance and financial services companies. When an estate passes from a spouse to a spouse, no estate tax is owed. A second-to-die policy kicks in only when it's needed--when the second spouse dies. Variable, universal, and whole policies can all be designed as second-to-die plans.

2. If you have a policy, review it The interest rates on cash value accounts can change, so you should review your policy at least once a year, says Mary Jane Callaghan, a partner at financial planning firm Evergreen Financial Associates in Fairfield, New Jersey. Ask your insurance company for an "in-force illustration," which will show whether your policy is meeting its projections. Then have your financial adviser review it. If a universal or variable policy isn't meeting your goals, you may be able to adjust it--whole generally can't be changed. As a last resort, you may want to take advantage of IRS code 1035, which allows tax-free exchange of insurance policies.

3. Decide whether you need a trust If you have a net worth of more than $2 million--the point at which federal estate taxes kick in--advisers like Callaghan recommend putting your policy in a trust so your heirs won't have to pay estate taxes on it. The good news: No matter what, death benefits are free of income taxes.

But be careful. Only an irrevocable trust will protect your heirs from estate taxes. If you don't want to deal with the hassle of a trust, go ahead and leave the policy in your estate. Life insurance is still a helpful way to provide your heirs with immediate cash.

4. Decide how much to buy First, your financial adviser should help you determine your current net worth and how much it's likely to grow, says Brian Harrison, insurance sales and marketing director at Commonwealth Financial Network, a broker/dealer for a network of independent financial advisers. Remember that nine-month IRS deadline--you'll need more insurance if a large portion of your estate is in illiquid assets, such as a business. And keep in mind that state estate tax laws have lower exemptions. In New Jersey, for example, taxes are owed on any estate worth more than $675,000.

5. Find the best deal If you have an adviser, he or she should help you find the best policy for the least money. If you're buying insurance directly through a broker, you'll want to keep an eye on the fees and commissions, says James H. Hunt, a life insurance actuary who runs the Consumer Federation of America's life insurance consulting service. Make sure your broker can solicit bids from a competitive selection of insurance companies, and if he or she isn't giving you a straight answer on fees, you may want to look elsewhere for help.

For variable policies, Hunt recommends bypassing a broker and buying a policy directly from TIAA-CREF or Ameritas Life Insurance, which offer commission-free policies. For whole life, he likes Northwestern Mutual, which holds his own policy. You may also want to consult with a fee-only adviser such as Hunt or Glenn Daily, a frequently cited New York City-based insurance consultant.

Your premiums will vary depending primarily on the type of policy you're buying and its size. John Uprichard, the 38-year-old owner and president of Find Great People International, a $10.9 million staffing company in Greenville, South Carolina, bought a whole life policy from Northwestern Mutual in 2006. He has a guaranteed death benefit of $500,000, and by the time he's 80 the policy could be worth more than $3 million, according to Northwestern's projection. His cost: about $14,400 a year for about 15 years.

6. Don't wait If you transfer an existing life insurance policy into a trust, you're up against a deadline. Because of an IRS rule known as the three-year lookback, the policy will still be considered part of your estate if you die within three years. "Many people are sleeping it off and hoping everything will be good when they wake up," says Phillips. "The problem is that people die in the interim and as a result there will be a huge mess."