Which Policy Should You Buy?

Buying life insurance, as with any other major purchase, is a personal decision. For example, term insurance is useful on a temporary basis if you are young and want to make sure a spouse and young children would be taken care of if you were to die unexpectedly. For young, healthy people, it is also relatively inexpensive. For the older, more established family, the fixed premium and cash value buildup of a whole life policy might be more attractive. If you do purchase whole life insurance, be sure you intend to keep it for the recommended long-term period. Allowing such a policy to lapse in its early years can be quite expensive.

One option that is often suggested is to buy term insurance and take the "difference" between the annual premium for whole life and the annual premium for term and invest it in some other financial instrument. However appealing this suggestion might appear, you need to ask -- and answer -- some hard questions. Can you discipline yourself to invest the "difference" year after year? Do you trust your ability to select investments that will earn what you need over the next 10 or 20 years? Are you certain that you won't touch your investment until you need it, say at age 60 or 65?

The following chart highlights the characteristics of each of the basic types of life insurance. It should help you decide which type of insurance best suits your needs.

October 14, 2008