SUM180 member Doreen McGettigan recently asked, “What type of life insurance (term or whole life) would you suggest for a self-employed, married 58-year-old woman. Healthy except for high blood pressure, controlled with meds?”
I think a lot of people have this question, so I’d like to share my answer for Doreen with the entire community.
First, a disclaimer. I can provide some insight for on Doreen’s question based on the information she offered given, but specific advice for her requires knowing more about her overall financial picture.
Now, to answer Doreen’s question.
First, term insurance is for when you have someone to protect. For instance, it should be put in place when you are married and do not have enough savings/investments to support your spouse’s living expenses if you die. You should determine how much support is needed annually, for how many years, and that will be the amount of the policy you should put in place, and the term of the policy is how long you think the protection will need to last. Be sure to cancel your term insurance when other assets have grown to where the term insurance is no longer needed.
Another example is that term insurance should be put in place when you have children, if you do not have enough savings/investments to support their living expenses until they grow up if you die. Again here, you should determine how much support is needed annually, for how many years, and that will be the amount of the policy you should put in place, and the term of the policy is how long you think the protection will need to last. It is a good idea to ensure the policy term covers children well through college, so a 20 or 30 year policy is best. It can always be cancelled when it is no longer needed.
Term insurance is also used to eliminate a debt you want cancelled upon your death. For example, if you want to be sure your home is paid off when you die, term insurance can be structured to accomplish that. Resolving business debt would be another use of term insurance.
If you don’t have someone that you need to support or a debt to eliminate if you die, you probably don’t need term insurance.
As for whole life, term insurance is usually better and less expense for addressing the need than whole life. The extra premium you pay for whole life, with the expectation of having a cash value at the time that it is cancelled, is generally higher than just taking the extra funds and investment them in a low cost investment account with a quality money management company, like a Vanguard, Fidelity or T. Rowe Price.
If, like Doreen, you are considering obtaining life insurance, I hope this helps!