Life Insurance: Term vs. Whole

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Should you buy whole life insurance or term? For most people, it probably makes the most sense to stick to term insurance. Buy just as much insurance as you need, and only for as long as you need it. With term insurance, you won't be paying anything extra as an "investment." Instead, put the money you save on premiums into better long-term investments -- such as stock market index funds, stocks you've selected on your own, or whatever you're most comfortable with. (If you're looking for stock and fund recommendations, look no further.) Your own investments are likely to outperform any investment an insurance company makes for you. By combining term insurance with investments on your own, you'll be minimizing your insurance costs and maximizing your investment potential.

Another plus for term insurance is that it's a very competitive segment of the insurance business, with companies open to lowering costs to win customers.

The Federal Trade Commission offers these tips for saving money on insurance:

• If you want insurance protection only, and not a savings and investment product, buy a term life insurance policy.
  
• If you want to buy a whole life, universal life, or other cash value policy, plan to hold it for at least 15 years. Canceling these policies after only a few years can more than double your life insurance costs.
  
• Check your public library for information about the financial soundness of insurance companies and the prices they charge. Consumer Reports magazine is a valuable source of information about a number of insurers.

Learn more about insurance in our Insurance Center. You may not have thought about some kinds of insurance, such as disability or long-term care insurance, but they're vital for many people. Take a little time to learn more, and you'll be very happy you did should some calamity occur in the future. You can also see what folks are saying and get answers to your questions on our Insurance discussion board.

By the way, if you've got short-term money to invest, learn how to make the most of it in our Savings Center (which offers Fools some special deals on interest rates).