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Buying Term vs Whole Life: Good Policies When They Meet Your Need

Those attractive numbers are very rarely what they seem. If the paper says "whole life level benefit," look for the fine print which shows you an increasing premium. If it says "no health exam or medical questions/guaranteed acceptance," look for a clause that says "graded benefit." That means the policy won't pay the face value for two or more years.

Other possibilities abound. However, the most consistent mail offering is some sort of Term life. That may not be a bad thing, as long as you get a Term with a level premium for the duration, rather than a premium that increases regularly.

Something as important as life insurance is worth more than a cursory perusal of junk mail flyers. It is worth your time to sit down with a couple of licensed agents and let them explain the policies they can provide you with. The language is not exactly standardized. Those who try to "go it alone" are often the folks who, in later years, blame the company for giving them exactly what they asked for—which usually isn't what they wanted.

Unless you specify that you want whole life, most agents—especially those marketing to younger families—will offer you a Term policy. However, that may not be right for you, and you won't know unless you talk and listen.

A term life insurance policy does exactly what it sounds like. For a premium that is nothing but the cost of insurance and fees, you have a life insurance—with riders available—that pays if you die during the period of the term. At the end of the term, you can renew it, but the premium may increase significantly. Furthermore, it may continue to increase every year and will not be renewable at all once you reach age 85 (the actual lapse age varies from company to company). Nevertheless, if you have outstanding debt that your family could not pay without you, a term life will provide excellent protection. Hopefully, by the time the term ends, the debts will be paid, and you won't need as much life insurance. The policy does not build cash value—unless it is one of the tricky new "term endowment" policies, so when you can no longer afford it, it is simply gone. It does, however, allow you a very high face amount for a fraction of the price of whole life. Depending on your situation, it may be exactly what you need.

Like term life, whole life is exactly what it sounds like. It is much more expensive than term because a large portion of your premium is being used to build cash value. Once you have owned the policy for 15 or 20 years, you can cash it in if you no longer need it, convert it to an annuity, or even purchase a single premium whole life which gives you an instant paid-up whole life policy with its own cash value. In short, if you want to add something to your retirement, leave a legacy, or build your assets, whole life is the policy you should have. It will stay in force to age 100 or over with a level benefit and premium. In fact, if you want something to last your entire life, the total you spend on a whole life will be less than what it would cost you to keep renewing a term. Finally, you can borrow against whole life, a possibility which provides you with a resource in the event of an emergency.

Whole versus Term? Again, it depends on your situation. In either case, do it right and talk to a real person. A day will come when you will be glad you did.

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