Life Insurance - Buy Term and Invest the Rest? - July 5, 2008 -

Term life insurance generally provides a death benefit and does not accumulate cash value. Some people believe that it is more cost effective to get a term life policy and put the extra money that whole life would cost into a separate investment. Their slogan is buy term and invest the rest. That is over simplifying the subject. For example, invest in what? And how exactly does a particular whole life policys features compare to a term plus investment plan? The truth is that there is no single insurance product that is always best for every person and situation.

As a Houston insurance agent my suggestion is to compare whole and term products if you want life insurance. A good agent should be able to show you rates, and discuss the features and benefits, of different policies. My belief is that my job is to show customers what is available and present options (not to try and sell a customer on any particular product).

Some situations that could favor a term policy include:

If you want to get the highest amount of coverage for the least amount of monthly payment.

If you only want life insurance for a certain period of time. (For example 5 years until the kids are on their own, or 10 years until the house is paid for.)

Certain estate planning purposes. (Consult your financial advisor)

If you have an investment selected for surplus funds that you feel has an advantage over putting the extra in a whole life product. (For example, if you put the additional available into a 401 plan with the employer matching your investment) (Consult your financial advisor)

You believe in term vs. whole life. We all have favored products; there is nothing wrong with buying something just because that is what you want!

Some situations that could favor a whole life policy over a term policy:

• You want a life long policy, or very long term policy. The total cost can be much lower than maintaining term insurance over many years. Some people call this the benefit of owning your policy vs. renting a term policy. (Renting is not really an accurate description of having a term policy).
• You like or want the benefit of your policy accumulating cash.
• You like or want the benefits of a particular whole life policy. Whole life, and universal life (more flexible whole life policy), often have more features and/or flexibility than term policies.
• Certain estate planning purposes. (Consult your financial advisor)
• You want your policy to supplement your income for you or your spouse at retirement. (Not all whole policys have this feature).
• You believe in whole life vs. term. We all have favored products; there is nothing wrong with buying something just because that is what you want!

Please consult with an agent you trust for more detailed information, and make sure your agent explains all the details of the policy you select. This article is too short to cover everything, and there is a large variety of products available. Customers in Texas can get information from my website at www.Life-Insurance-Houston.com. You are also welcome to call my Houston office at 281-537-2700.

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