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Ask the Life Insurance Expert

I'm trying to decide if I should buy term life or whole life insurance. What are the pros and cons of each?

There is no one size-fits-all answer when it comes to selecting life insurance. The choice depends on your situation and needs.

Term life provides coverage for a certain period of time, such as 10, 15, 20 or 30 years, and pays a death benefit if you die within that time frame. It's far less expensive than whole life, and it's also relatively simple to understand and compare policies. If you want insurance protection only for a set period of time--such as the years before your children graduate from college or until your mortgage is paid off--then term life might be your best bet.

Permanent insurance, including whole life and universal life, provides coverage for your entire life, so the policy pays a benefit no matter when you die. It also features an investment component--a cash account that gradually accumulates value over time. You can borrow from the cash account, but the death benefit is reduced if you don't pay the money back before you die. With traditional whole life policies, your beneficiaries receive only the death benefit when you die. Some higher-priced policies allow beneficiaries to collect both the death benefit and the cash value.

For a whole life policy, you pay level premiums for the rest of your life, and the death benefit remains level. Universal life, on the other hand, provides greater flexibility. Once you make an initial premium payment, you can increase or decrease the amount of the death benefit and pay premiums at any time or in any amount, as long as you meet a minimum premium level. However, universal life is more complex than whole life and you should understand the policy before you purchase it.

Before you shop for life insurance quotes, determine how much life insurance you need and for how long. Theoretically, your need for life insurance should decline over the years as fewer people depend on you for income support. Term life may be the way to go if you only need protection for a set number of years. But you should consider permanent insurance if you want to protect a business entity or a large estate. The life insurance policy would provide money for your heirs to pay estate taxes.

For more, see life insurance basics.



Last updated: Apr. 25, 2011