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Question for the Money Doctors

Question submitted on Jul 16, 2013.


My husband and I are looking to purchase additional life insurance other than what we have on our jobs. I will be 45 soon and he will be 54. I am not sure if term vs. whole is best. With term, the possibility of paying for 15 or 20 years and the coverage ceases frightens me, since we will be considerably order when we try to renew.

Any suggestions?


You have identified a key driver in having a whole life insurance policy, that it will be there when someone dies. On one side of the ring, there are those that hypothicate that you won't need life insurance when you die if you save enough money, so term insurance is the only way to go. On the other side, one can never have too much whole life insurance. The reality lies somewhere in between. There is no one size fits all answer to your quandry. What I can give you is a few considerations to be thoughtful about.

1. Your daily life should be structured so that you can save at least 10 percent of your money in your retirement plan and to be able to afford risk management planning implementation as well long term disability, life insurance, and later, long term care insurance.

2. Solve for the entire insurance need in term insurance first. Compensation is greater on a whole life insurance policy or universal life policy than a term insurance policy. So, motivations by representatives may lead toward whole life in lieu of the proper full coverage.

3. If whole life insurance is appropriate for your overall plan, determine how much you can afford to allocate and purchase the amount that you can afford. I mentioned Universal Life Insurance above. Great care must be exercised when using Universal Life insurance as a solution. Often times it is sold as "cheaper" than whole life, when many times it ends up being a very expensive term policy as it is not programmed to last your whole life, but up to a certain age. The analogy that I use is "If you need $500 per month saved for your retirement, you can't get there by saving $250 per month." There is nothing magical about life insurance. Eventually, cash value is the same as the face value of the policy.

4.Make sure you do research and purchase from a strong top ranked insurance company. While they may be more strict on underwriting standards, you may benefit in the long run.

5. Compare the proposed illustrations from different insurance companies. For universal life policies, make sure there is cash value over the life of the policy.

6. Be very careful about equity indexed life insurance. There is too much to get into in this short space, but often times the costs for all of the riders drives down value. As always, read the fine print.

7. Be very careful about no lapse guarantee riders. The insured puts in quite a bit of money over time, and generally does not accumulate any kind of meaningful cash value that may need to be accessed in an emergency.

8. For term insurance, consider a convertible policy that you can convert through age 60 or 70. This allows you to grow into the proper coverage rather than feeling overwhelmed to get what you want today. This is your life, not the agents.

9.Some companies offer a waiver of premium that not only pays for the term insurance cost, but also the whole life premium if there is a permanent disability, not just on the whole life policy, but also on the term insurance which converts to whole life.

10. Ask for a specimen policy so you know what the details are of what you purchased. It is fairly easy to secure a specimen policy.

If one avoids key pitfalls in financial decisions, that can be far more beneficial than a hypothetical return.

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