Whole or Term Life Insurance?

Term life insurance: There really is no debate about whole life insurance vs term insurance. They are used for different purposes. Term life insurance covers a person against death for a specific term, for example, until children are grown, or until college is paid for, or until retirement. If no claim is made against the term life insurance policy, you don't receive any benefits after the policy expires, just like auto or homeowners insurance.

Whole life insurance, also called permanent insurance, lasts your whole life; it does not expire as long as you pay the premiums. It provides coverage similar to term life insurance, but it also provides an investment vehicle. A portion of the premium goes for the whole life insurance, while the rest goes into an investment account. This account can be an interest bearing account or a variable (stocks) investment account.

Which is better (our opinion)? A young family with large financial obligations is usually better off with a term life insurance policy. The substantially lower premiums enable them to purchase sufficient coverage to protect against loss of income. Any discretionary investment funds can be placed in other vehicles (mutual funds, money market accounts, etc.) that are likely to generate returns similar to or better than a life insurance policy. Whole life insurance is often purchased by people for tax and estate planning purposes. Recently, some advisors have started recommending life insurance as an investment. You should consult with your financial advisor.