What type of insurance should I have?

Here is a direct quote out of an email a friend sent me this week "I received an offer in the mail for WHOLE life insurance thru the credit union.  I do need to get life insurance, as I had a small policy thru work, but it will go away with the job.  Is whole life a good thing?  I have never understood life insurance….ugh".


Well, truth be told, I don't think she needs WHOLE life insurance at this point in her life.  And knowing what I know of her health, it will be pretty costly.  That is not to say I am not a proponent of whole life insurance. Quite the opposite.  I think there is a place for it in a portfolio.

Let's back up though...first I am sure you are wondering why in the world she would ask ME about life insurance. Well, I used to sell it.  I sold a lot of whole life insurance at that.

But before we move on let's talk about the different types of life insurance that you will encounter.  One type is whole life (don't let your eyes glaze over...this is important stuff!!).  It is a fixed premium (in other words the amount you pay doesn't go up...ever) insurance that lasts for your whole life.  It doesn't end.  Well, it might, when or if you turn 100, but the chances of that are slim and the life insurance is banking you die way before then.  This type of insurance is pretty expensive when you are younger when compared to other types of insurance.  All kinds of people will talk you out of buying whole life insurance for that very reason.  A feature of a whole life policy is the cash value that builds in it over time.  Some people try to sell the cash value as savings account.  Don't be fooled.  It is not a savings account.  If you want to "borrow" the money you may, but if you don't pay it back then the value of the policy upon your death is less the amount still owed.  (are you still with me?)

Then there is term insurance.  Everyone touts this type of insurance.  It is much less expensive compared to whole life.  But as its name implies, it is only for a "term"....whatever that term is.  For example, you can have a 1 year renewable, 3 year renewable, 5 year renewable, or 30 year renewable term policy.  After the "term" you are either without insurance or you need to renew your policy at your new age. And you need to pray you are still insurable.

The reason so many people say you should stick with term is because of the cost. They think you can get a better "deal" with your money if you invest the difference between the cost of term and the cost of whole life.  There are a couple of issues with this thinking.  The first issue is that most people will NOT invest the difference.  Yeah, they'll say they will, but the majority will not be diligent enough. The other issue is regarding insurability.  You're healthy, right?  So what's the problem?  Well, a myriad of things could make you uninsurable, or increase your premium.

We use to have whole life insurance.  A lot of it in fact.  I sold it, remember?  Well, when I started investing and managing our portfolio on my own, I decided that I would "invest the rest."  There aren't very many people who follow through.  Plus, I found a company that locked in a 30 year term.  Our life insurance will not increase or terminate before I am 70.  I am okay with that.  The only issue that came up was when I disclosed my gestational diabetes with my 3rd child.  I pay double what my husband pays.  That sucks, but I would rather disclose the information than not and have the insurance company fight a future claim.  And we still do have some whole life...all the kids have policies.  I like the fact that they have guaranteed insurability options for later in life.  If they choose not to keep it then that is on them.  We have done our part.

Back to my friend who wrote and why I don't think she needs whole life insurance.  She is a woman in her mid-forties with no spouse or children.  She doesn't have any considerable assets to protect.  I think, in my humble opinion, she is better off getting a small term policy.

Remember, every person and family is different.  There is no one-size fits all with life insurance.  And I only touched on the 2 main types of insurance. There are a few more.  I wanted to you to still be awake by the end of this post.