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Term life insurance cheapest but limited in its length of coverage

Updated: May 3, 2013 12:15PM

Q. Which is better — term insurance or whole life?


First, let me say that the most important issue is not which type of insurance is best for you, but that you purchase some form of life insurance to benefit loved ones who would suffer financially in your absence.

Life insurance is about risk — the risk that you will die at an inappropriate time. Now, there is one sure thing: We will all die sometime. So you’re hedging your timing bets with money to replace your “value” to those who depend on your current — and future — earnings. How much insurance do you need? Think about what your dependents would endure over the years without your earnings stream.

Term life insurance is the least expensive and simplest form of insurance. The premium dollars you pay to buy this insurance cover the “mortality costs” — the likelihood that you will die this year. There is no extra cash buildup within the policy. Ordinarily, as you get older the cost of life insurance should rise, along with the likelihood of your death. But the insurance industry has gotten around this issue by creating “level term” — a guarantee that the annual cost will remain the same for 10, 20, or even 30 years.

With term insurance, as long as you keep paying the annual premiums (which you may pay monthly, or quarterly), the policy will stay“in force” — protecting you and paying the death benefit to your designated beneficiaries.

Term insurance is the least expensive kind of insurance, and you don’t need an insurance agent to purchase it. You can go to online services such as (888-412-5433) or, to compare prices, which are likely to be a lot less expensive than you may think. The application process is simple, but you may be required to take a quick physical exam to see if you qualify. If you’re a non-smoker in good health, the cost for your policy may be just a few dollars a day, depending on your age and gender.

The problem with term insurance is that the term ends — and it may leave you uncovered for insurance in 20 or 30 years, when you are not healthy enough to qualify for a new policy. That’s why many people turn to various forms of “whole life” insurance, which will cover your entire lifetime. With these policies you pay higher premiums, but some of that money is “saved” inside the policy, earning interest or invested to build up even more cash. Then in future years, you can borrow out some of the excess cash — or use it to pay premiums when you’re older and have stopped working.

One warning: Many of these whole life, or universal life, or universal variable life policies are shown with “illustrations” of money growing inside the policy to pay premiums when you are retired. But illustrations are not guarantees. And in this low-interest rate environment, it’s wise to ask for an insurance checkup to make sure you are paying enough in premium to keep the policy going in later years.

Find out more about life insurance at — a non-profit devoted to educating consumers about life insurance.

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