The kind that pays when you die. I know, they all pay when you die, but isn’t Whole Life the “good kind”?
These are very, very common questions that I have heard in my career. And the answer to the “which is best?” question is unique to each family, so I’ll try to boil it down to life insurance purchasing priorities. When you buy a house, some things are more important than others – like price, size, bedrooms and location. It may be worth extra money to live near the school that your children attend.
Life insurance purchasing has its own priorities. Is the coverage high enough? How long will the policy stay in force? Can I build a cash value in this policy? The answer to each of these questions presents a different cost, and that will help you prioritize what is important.
In my opinion, the first priority should always be coverage amount. And, ideally, every family would have adequate coverage in a permanent policy that would never term out. But this is not often a budgetary reality. I would rather see a family get the right amount of coverage in a less expensive term policy than less coverage in a permanent policy. The reason? Because most term policies can be converted to a permanent policy down the road when you are more financially secure. It’ll be more expensive then, but you will have the right coverage along the way.
What about cash value? My brothers in the life insurance business will disown me for saying it, but I think this is the last priority in buying life insurance. There is a time and place for permanent insurance. I own a permanent policy in my business setting, and it was the right policy for the business. But in most family situations the priorities should be first – coverage, second – permanency or term length; and lastly – cash value.
The need for a life insurance policy ranges widely across family and business scenarios. But it is important to remember that life insurance receives special tax treatment precisely because it is meant to deliver a family/business through the loss of a bread-winner. When looking into the costs of life insurance, make sure your priorities are in order and your decision will be less difficult.
Purves Insurance is located in Davis, CA and specializes in making insurance less confusing. Call today at (800) 681-2025.
