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Question:


My husband and I are in our 40s. We have a business and two children under 4 years old. What we don’t have is life insurance. Are we better off with a whole life or term policy?
-FishFoodLady


Answer:


Term insurance pays out if death occurs within a fixed period, anywhere from one to 30 or more years. A payout is certain on a whole-life policy due to its open-ended nature and the unfortunately closed-end nature of life.
 
There are advantages and disadvantages to both types of insurance. Premiums tend to be lower for term insurance, so if you expect to have more cash on hand in years to come, serial term policies may be the way to go. Likewise if you expect the business to grow and become an insurance policy in itself, you may wish to buy term policies that remain in effect until your children are grown and can make an informed decision, if necessary, about whether to run the business, turn it over to other managers or sell it, perhaps 20 or 25 years.
 
A whole life policy is more of a known quantity, and not just because you know you’ll meet your demise one day. Premiums and death benefits tend to be fixed, so the policies are easier to plan around. There may also be tax breaks for those who borrow against the value of their policies.
 
If you’ve got a sunny disposition, you may appreciate the fact that whole-life policies often can be cashed out if the policyholder lives to a ripe, old age like 95 or 100; no death required. If you’re a dour sort, you might want to consider a potential and devastating drawback of term policies: It’s possible to become terminally ill and outlive a policy, while being so sick that the insurer will not renew it. It would be the worst kind of luck if such a development befell you, but isn’t safeguarding against the worst kind of luck a reason we buy insurance?
-Conrad de Aenlle



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