Do we recommend term insurance or whole life insurance? Well, 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. 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 is a valuable source of information about a number of insurers.
We offer more information in our Insurance Center, and you can get your questions answered on our Insurance discussion board (or just drop in to see what others are saying there). The websites of many major insurance companies can also be helpful. Depending on the kind of insurance you're after, you can click over to American International Group (NYSE:AIG), Allianz (NYSE:AZ), AXA (NYSE:AXA), Aetna (NYSE:AET), MetLife (NYSE:MET), Progressive (NYSE:PGR), or Berkshire Hathaway (NYSE:BRK-A). You may not have thought about certain kinds of insurance, such as disability or long-term-care insurance, but they're vital for many people. You may be very happy you took the time to learn a little more -- especially if some calamity occurs in the future.
