Which Life Insurance Is Best?
LIFE INSURANCE COMES IN three flavors. Term insurance offers plain-vanilla protection at a low cost. Then there's whole life, which has a savings component. A third type, the return of premium, is essentially a hybrid of the first two.
Here at SmartMoney.com, we generally recommend term life, as its low premiums allow consumers to get maximum coverage at little cost. (They can then invest on their own the savings they'll reap by forgoing pricier options.)
But don't just take our word for it. Before you head to an insurance broker's office, you should be familiar with the pros and cons of each policy type. Insurance agents are notorious for their heavy-handed sales tactics. Arming yourself with some knowledge ahead of time is the best way to make sure you wind up with the policy that's right for you.
Term Life Insurance
It's cheap. Term life is the most affordable variety of life insurance. Its reasonable rates allow people to buy policies with larger face values than they could otherwise afford. For example, a 45-year-old male nonsmoker could pick up a million-dollar, 30-year term policy for $2,600 a year, says Brian Place, principal owner of TermAssistant.com, a Web site that sells life insurance. A whole life policy, also known as permanent insurance, will cost 2.5 to 4 times as much, he says. (Click here for a glossary of life insurance terms.)
It's easy to buy. All you need to do is figure out how much you need — and how long you'll need it — and then shop around a bit to find a competitive rate. A broker could help you out, of course, but you also can do quick searches on the Web at sites like TermAssistant.com, AccuQuote or Insure.com. Just make sure the company you ultimately select is financially stable by checking out its rating with a service like Standard & Poor's or AM Best. Go with an insurer that's rated A or better.
It covers a temporary need. Remember, life insurance is meant to provide for your dependents. Later in life — after the kids are in college and you and your spouse have socked away a generous retirement stash — you might not have any dependents. So while you might buy a policy when your first child is born (and you might increase it as you have more children), you may only need life insurance for, say, 30 years.