Insurance
Life Insurance: Term or Whole?
If others - your spouse, your children, other family members - depend on you for their financial security, you should seriously consider the purchase of life insurance. Its main purpose is to help family members meet financial needs that were covered by your income.
There are two main types of life insurance - term and whole life. Term policies cover you for a specific length of time; whole life policies remain in force until you die and pay a specified benefit to beneficiaries upon your death (assuming that you have paid off the entire policy or kept current with your partial payments.)
Here are some tips that can help you decide:
- Term life offers death benefits only. It is "pure" insurance with no investment component. While premiums are substantially lower for the first years, term life premiums often increase with your age. And the policy could expire before you do.
- Whole life, sometimes referred to as permanent life, combines life coverage with an investment component. Permanent life policies are substantially more expensive than term life unless you buy one at a very young age. Some variations of whole life are universal life and variable life, which also require premiums that are more expensive than term. These policies, however, stay in effect until you die.
- Buy enough coverage to fit your needs. Term life rates are at historic lows and this is no place to skimp. The younger you are, the cheaper the insurance, whether you opt for term or permanent life insurance.
- Buy life insurance when you are healthy. Use the Internet to help you shop for rates -- especially when buying term life. Be sure to check out the company before agreeing to purchase a policy.
- Assess your life insurance needs in light of your current and projected family situation. For instance, if you need $60,000 over the next three years to cover your child's college tuition, then you will need $60,000 in term life to make sure that your child can graduate - even if you die.
- Permanent life (whole life) policies accumulate cash value, which increases over the value of the policy. Avoid the fancy riders - except the waiver of premium, which suspends your payments and keeps the policy in effect if you become disabled.
- Annuities are somewhat more complex plans, often sold by insurance companies, that are similar to a savings plan and can provide primary or supplementary income during retirement. For a full briefing, go to: www.myfloridacfo.com/consumers/guides/life/docs/life_annuities_2008.pdf
Here is a calculator that will help you determine how much life insurance you may need: How much life insurance do I need?
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