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         I hear this question a lot. The answer is going to depend on the purpose of the insurance. In this blog, I am going to discuss the pros and cons of both kinds. Hopefully, this will help you determine which is more appropriate for your needs.

    With term life insurance you typically pay a premium for predetermined number of years. The most common terms I deal with are 10, 15, 20, and 30-year terms. At the end of the term, typically the policy terminates, renews again for the same period, or renews on annual basis. If the policy renews, it can be at a substantially higher premium (I have seen premiums increase 300%). Many times when this happens, the policy is too expensive to keep.  Term has no cash value, so if you cancel the policy you will receive nothing.  The reason why a lot of people choose term is that it is initially much cheaper than whole life. Another important consideration is that term insurance might not be available at older ages.

   With whole life insurance, you normally pay for your policy until you reach 100 years old (however this can be younger based on the policy) or until you become deceased. The premium is usually level, meaning it does not change as long as you have the policy. Whole life insurance builds cash value (usually it takes 1-2 years before any cash value has built up). This means that if you cancel your policy, you might get a check from the insurance company for your cash value, less any surrender charges. You can also take out a loan against your cash value. With all these benefits, why wouldn’t everyone by whole life? Because, it is usually considerably more expensive.

   Many agents will tell their clients to only buy term, while other agents will tell their clients to only buy whole life. I am under the strong belief that both types serve different purposes and the type should be based on the need. For example, a person typically needs more insurance while his or her kids are young. In this instance, I would probably use a 15 or 20 year term for a bulk of the insurance coverage. If somebody has a 30 year mortgage, I might match it with a 30 year term policy for the amount of the mortgage (if the mortgage is paid off, the person probably will not need as much insurance). If somebody wants a policy to pay for her funeral and final expenses, I would use a whole life policy for this need. I also use whole life for tax planning purposes.

    If you would like to know which type is better for you or if you have any questions, don’t hesitate to contact me at cbeiter@preservation1st.com. On my next blog, I will give examples how life insurance can be used for tax planning purposes.

   If you have any other insurance questions, call (800) 978-8813 or write to http://www.birchellins.com . Thanks for taking the time to read my thoughts.

 

Christian

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