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Bryan Said:

Do I need life insurance? Whole or term?

We Answered:

Term life pays a flat amount to you if you should die before the term is up. Whole life also pays that flat amount upon death, but also includes a "savings" component, so the policy gains some value as time goes on.

Term is the better choice for most people because whole life is very expensive. Go look at the premiums -- the same coverage for whole life costs something like 8 - 10 times what term life does. Basically, with whole life, you are buying term insurance plus a "savings" policy. The "savings" part of whole life tends not to have returns as high as if you invested on your own (say, in a mutual fund, for example). So basically, with whole life insurance, you are still "flushing down the drain" the part of your premium which was used to insure your life. You just have this combined savings bit that I think "tricks" you into thinking you've not done that.

So generally, you would do better by buying term insurance, and then taking the difference between what the term cost and what whole life would have cost, and investing that yourself. (Just watch the
http://www.vilkri.com/resources/reader.p…
when you do invest yourself -- it's basically the "management fee", though it comes more in the form of commissions, with whole life that gets you.)

The other reason term is often preferred is that you can be sure to get *enough* coverage. That's really important. You want to be sure you've got enough coverage that your partner will be okay financially after you are gone. You should think a bit about what you want, though -- do you want your future spouse to be able to keep this house? Or would it be okay to give her a few years to sell the house and get on her feet? Given today's housing market, I would be nervous about leaving someone with a mortgage she could not pay, because selling the house might just not be a good option. But everything we do with respect to the future is a bit of a gamble, so you have to balance out what it is worth to you, look at the price of various policies, and figure out how much risk both of you can live with.

If you have trouble sticking to savings and investing, there could be a role for whole life if it forces you to save -- you'd just be paying for that additional "incentive" to save. And of course, if you couldn't make the payments, your life insurance would be at risk, whereas with the "term plus savings" option, you could always skip the savings piece if you were really in a jam without threatening the loss of your life insurance.