What It Is
There are two main types of life insurance.
- Term: This type pays out what you've paid in if you die within a certain amount of time -- that is, a term, as in 30 years (the average length of a mortgage.) The pros? It's way cheaper than permanent insurance. The cons? After the term ends, you've got nothing to show for it...besides your life that is.
- Permanent: This type accrues equity, not unlike a mutual fund, and it pays out a substantial balance at the end of the policy term. Plus, you could potentially use it to borrow against. The pros? It's good for long-term financial planning -- kind of like buying rather than renting your home. The cons? It's damn expensive.
Do We Need It?
No, but if you were to die, life insurance could help cover:
- Your lost income.
- Your mortgage and other outstanding debts, plus funeral, burial, and health-care costs.
- Estate taxes, depending on how you structure your policy.
How to Get It
- Your employer: Many companies provide their employees with life insurance free of charge. This is term insurance with all its drawbacks (see above). The advantage, of course, is that there's no cost to you. Some states require that your employer let you "carry" your insurance with you if you leave the company (kind of like COBRA, which lets you continue on your company's health plan after you leave). As with COBRA, you have to pay.
- Agent or broker: Traditionally insurance is sold through an agent or broker, who will generally charge a commission, which is sometimes called a "load."
- Insurance company: Some companies allow you to buy insurance directly by phone, mail, or the Internet. These policies often don't incur commissions (they're called "no-load"). The downside is that they're harder to find and require more legwork than if you were to use an agent.
- Savings bank: In some states, savings banks sell life-insurance policies.
How to Choose
First ask family members, friends, and coworkers for recommendations. Then call the usual suspects -- MetLife, Progressive, Liberty Mutual -- and get all the gory details.
by The Nest Editors
7/1/08
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insurance,
Money