Everyone knows the value of life insurance and what can happen if you don’t have it. A spouse dies, leaving the other spouse with little or no income and no resources. Dreams of staying in your home or sending the kids to college may go by the wayside. Everything caves in on itself.
So you need it, but committing to buying it is something else. First off, life insurance is an important part of your financial plan. If you are married or have kids, buying life insurance is a no brainer. There are no excuses not to have it. If you are single, you might want to rethink buying it, or just have a minimum amount for your burial expenses. But you can also buy a policy to leave money to your favorite charity or niece or nephew, or to cover your bills if necessary.
You may have a policy through work, but is it enough? Some workplace policies are just enough to pay funeral expenses, but will not provide a comfortable life for the surviving spouse or send the kids to college.
You can buy a policy to supplement your workplace policy. So do you go for term or whole life insurance?
Term insurance is usually cheaper, but also only pays the face amount of the policy to the insured’s beneficiary. Whole life, or permanent insurance on the other hand, is a forced savings situation—you pay a premium and part of it is invested and grows for you over the years. An argument against whole life is that you can pay for term insurance and invest the balance yourself and come out ahead. But if you keep a whole life policy for at least 20 years, it can make sense for you. You can also borrow against a whole life policy.
Much of the decision is going to depend on how disciplined you are as a saver or investor. If you are a dedicated investor, you might want to go the term insurance route. If you want a policy to grow automatically, you might choose whole life. Ask your financial planner what type of policy would work best for you.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.