Ask the Life Insurance Expert

We would like to buy $10,000 in life insurance for my wife. What would be better, term or whole life?

Let's tackle your question in two parts. First, why do you need life insurance?

The answer will help you choose between term life and permanent coverage. Term life covers you for a certain number of years, such as 10, 15 or 20 years. If you die after the term ends, the policy pays out nothing.

Permanent life insurance, such as whole life, provides coverage for your entire lifetime, so the policy pays a death benefit no matter when you die. Permanent life insurance also includes a cash value account, which grows with time. You can borrow against the cash account, but you have to repay the money plus interest or the death benefit is reduced.

Because it features no cash account and provides coverage for only a limited period, term life is far less expensive than permanent life insurance. Most people buy term life to cover those years when they're raising children. They time the term to expire once their kids have graduated from college and their mortgage is paid off.

You need permanent life insurance if you want to leave money to a beneficiary, regardless of when you die. Permanent life insurance is a good choice if you:

  • Need to protect an estate.
  • Have a lifelong dependent.
  • Want to make sure your final expenses, such as medical bills and funeral costs, are covered.

Second, think through how much life insurance you need. Most major life insurance companies don't sell policies for under $25,000.

Some smaller life insurance companies offer whole life policies under $25,000 and market them as final expense, funeral or burial insurance. These are generally sold as "guaranteed acceptance" policies, which means you don't have to undergo a medical exam to qualify for coverage. That makes for a more convenient application process, but you should talk to a financial adviser first to weigh the pros and cons. You can probably get a better deal per $1,000 of coverage if you buy a larger policy and go through the medical underwriting process.

No matter what type or amount of life insurance you choose, make sure you understand the policy and check the financial strength rating of the life insurance company before you buy.

For more, see Life insurance basics.

Last updated: Feb. 9, 2012
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