PERSONAL FINANCE > Ask the Expert
NEW YORK (CNN/Money) - I would like to take out a life insurance policy on my husband, who is a smoker, so I have at least enough money to cover the mortgage on our house if anything happens. My company is offering term insurance at a good price, but I'm confused as to whether I should take out a term life or whole life policy. I can't afford a very large premium. What do you think I should do?
-- Rachel Rifilato, Yorktown Heights, New York
First, let me tell you that I think your instinct to get some insurance coverage on your husband is absolutely correct. The primary purpose of life insurance is to provide support to a family in the event a spouse or other bread winner dies, leaving the household without that person's income. But that still leaves us with the issue of whether you should buy term insurance or whole life.
Term or whole life?
Term insurance essentially provides bare-bones protection. You pay an annual premium for a specific dollar amount of insurance that your beneficiaries receive if you die while the policy is in effect. Whole life insurance, on the other hand, not only provides a death benefit like term, but also has an investment component. A portion of your premium goes toward insurance while the rest helps build the policy's "cash value," which grows tax deferred and which can be borrowed against if needed.
There's another important difference between the two. As its name implies, a whole life policy remains in effect for your entire life, assuming you pay the premiums. A term life policy, on the other hand, is limited to a specific term. And although you can typically renew the coverage at the end of that term, most term policies don't allow renewals beyond age 65 or 70.
Both types of insurance can have their place, but for most people -- and almost certainly in your case -- term insurance is probably the better choice. The reason is that with term you get a lot more insurance protection for the same dollar premium. In fact, for the same size policy, the premium on a whole life policy may be as much as ten times that on a term policy.
That's because in the case of the whole life policy, not all your premium is buying life insurance protection. Some is going into the investment component of the policy. In any case, if you are looking to get basic insurance protection while holding down the premium you must pay, then term insurance would seem the logical choice.
I'm confused as to whether I should take out a term life or whole life policy.
September 26, 2002: 11:14 AM EDT
By Walter Updegrave, CNN/Money Contributing Columnist
NEW YORK (CNN/Money) - I would like to take out a life insurance policy on my husband, who is a smoker, so I have at least enough money to cover the mortgage on our house if anything happens. My company is offering term insurance at a good price, but I'm confused as to whether I should take out a term life or whole life policy. I can't afford a very large premium. What do you think I should do?
-- Rachel Rifilato, Yorktown Heights, New York
First, let me tell you that I think your instinct to get some insurance coverage on your husband is absolutely correct. The primary purpose of life insurance is to provide support to a family in the event a spouse or other bread winner dies, leaving the household without that person's income. But that still leaves us with the issue of whether you should buy term insurance or whole life.
Term or whole life?
Term insurance essentially provides bare-bones protection. You pay an annual premium for a specific dollar amount of insurance that your beneficiaries receive if you die while the policy is in effect. Whole life insurance, on the other hand, not only provides a death benefit like term, but also has an investment component. A portion of your premium goes toward insurance while the rest helps build the policy's "cash value," which grows tax deferred and which can be borrowed against if needed.
There's another important difference between the two. As its name implies, a whole life policy remains in effect for your entire life, assuming you pay the premiums. A term life policy, on the other hand, is limited to a specific term. And although you can typically renew the coverage at the end of that term, most term policies don't allow renewals beyond age 65 or 70.
Both types of insurance can have their place, but for most people -- and almost certainly in your case -- term insurance is probably the better choice. The reason is that with term you get a lot more insurance protection for the same dollar premium. In fact, for the same size policy, the premium on a whole life policy may be as much as ten times that on a term policy.
That's because in the case of the whole life policy, not all your premium is buying life insurance protection. Some is going into the investment component of the policy. In any case, if you are looking to get basic insurance protection while holding down the premium you must pay, then term insurance would seem the logical choice.
