Q: Which is the best life insurance option: term or permanent?
A: Many consumers find life insurance confusing. There are term, indexed, universal, variable and whole life products to choose from, plus a multitude of life insurance companies with their own variations and features. You can buy insurance over the Internet, through the mail or from your local agent. So, how do you determine what is right for you?
First, determine whether you have a short- or long-term need for life insurance. Will your family need protection for a limited period of time, for example, to pay off a mortgage or to replace your income? Or, are there longer-term needs, such as creating liquidity to pay estate taxes at death or using the life insurance policy as a cash accumulation tool for supplementing your retirement income?
If your need is for a limited period of time, then term insurance is likely the best choice. Term insurance is generally the least expensive and the most readily available. But don’t make your decision solely on price. Before you buy, be certain to ask:
• How long has the company been in existence, and what is its financial rating? You want the company to be there to pay a claim if necessary.
• Does the term policy have good conversion privileges? Your need for insurance may change, so your term insurance should have the flexibility to change with you.
Purchasing permanent insurance is more complicated because of the multitude of products and their level of risk. Permanent products
are more expensive than term but provide many more benefits. For example, a permanent product builds cash value. If the policy is properly structured, you can even have access to a portion of the cash value without having to include it in your taxable income. If you have a long term need, use an experienced agent to help you choose a policy that will fit your objectives, and ask to see several insurance options to make sure you end up with the right product for your needs.
Chuck Van Devander (JD ’95, LLM ’97) is a senior vice president of Aviva USA—a leading life insurance and annuity company. Prior, Chuck was with New York Life and ING. He is a frequent speaker on life insurance, estate planning, split dollar, income taxation, litigation awareness and ethics. Chuck, his wife and two children reside in Urbandale, Iowa.