Buying life insurance is about as appealing as changing a dirty diaper, but unfortunately both are facts of life for any parent. At its most basic level, life insurance is intended to maintain your family's standard of living should you or your partner die. An accurate estimate of how much to buy takes a bit more work: Look at your annual living expenses, then add in predictable big-ticket items (like college tuition) and any outstanding debts. Also consider any safety nets, such as a second home, you may have that would reduce the amount of insurance you need. Once you've determined your worth, you're ready to determine whether you need a term or permanent plan.
TERM INSURANCE
Best for
Those who only need to support their children while they're dependents.
How it works
Term insurance works like auto insurance: You pay premiums, and the insurance, or death benefit, is only paid out if you die during the period for which you are covered. Popular terms run for 20 or 30 years, which will cover you should you pass away anytime before the expensive college years are through.
Benefits
It generally provides the most coverage for the lowest cost.
Limitations
Should you outlive the insurance, you get nothing. This is not an investment policy, so you can't borrow against it or surrender it for cash.
Ask your insurance salesperson about...
Short term versus long term. The cost of term insurance rises as you get older. Getting a 10-year policy may work for some, especially since the premiums will be lower—but if you think you may need insurance for a longer period, lock in a good rate while you are young and healthy.
PERMANENT INSURANCE
Best for
Those who will need to support their children for their entire lives (e.g., parents of a special-needs child), or those who might have trouble getting insurance later on because of medical issues.
How it works
Permanent insurance provides both a death benefit and a cash value, which is a tax-deferred savings or investment vehicle. A portion of your annual premiums goes into the insurance; the rest is put into an interest-earning account or can be used to build an investment portfolio.
Benefits
As long as you keep paying the premiums, you are covered until death, at which time your beneficiary will be compensated. You can also borrow money from your policy at any time without a high tax penalty, or withdraw the cash value should you decide to cancel your policy.
Limitations
The cost is much higher than term insurance's. Also, you risk forfeiting gains if you fail to pay the premiums, so make sure you are prepared for the cost before signing up.
Ask your insurance salesperson about...
The different kinds of permanent plans. Whole life has both a fixed death benefit and an interest rate for your cash value; universal life has a floating interest rate.
For instant quotes, try Insure or Intelli Quote.
