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Choice of life insurance policy depends on personal goals, values, needs

Life insurance is far from simple.

What's right for you -- term or whole life -- is a very personal decision, said John B. Kelly, a certified financial planner in Folsom, Calif., and author of "The Investor's Caddie." Your choices depend on your personal goals and values concerning money and what it can do for your family, your business or your legacy.

You will need to consider: the purpose of the coverage, whether it's a permanent or short-term need, the proper amount of coverage and your health status.

With term life insurance, you pay a set premium every month for a specific number of years. If you die, your beneficiary receives the policy amount. If you outlast your term insurance, you don't see the money again. Term insurance is less expensive initially.

Whole life policies, on the other hand, require a set premium, possibly for as long as you live. They also have an investment portion that accumulates a cash value, which can be borrowed against or paid out. Whole life -- so-called "permanent" insurance -- requires a higher premium because of the insurance and savings portions.

For these reasons, Kelly recommends a risk analysis by a qualified insurance professional to thoroughly understand your situation.

If, for example, your life insurance need is for business purposes on a temporary basis, you may wish to "rent" the coverage using term insurance. You have the coverage as long as you pay the premium; in effect, renting the benefit for the period needed. You build no cash value.

If you need coverage for other business issues -- such as retaining valued employees, funding buy-sell agreements or creating supplemental retirement benefits -- whole life coverage can help with those concerns.

If your insurance needs are solely family-related, you also want to consider whether the coverage is temporary or permanent. If you are concerned only about covering a mortgage, certain debts or replacement income for your family if you were gone, then term insurance may be best.

Whole-life insurance can deal with those temporary needs, but also be a resource to cover retirement, long-term care, college educations, weddings, special needs and other expenses.

No one solution applies to everyone, Kelly said. You may find, for instance, that "convertible options" best serve your needs. These policies allow you to switch from term to whole-life if your needs change, regardless of your health status.

Again, the choice of life insurance depends on the purpose, the time frame and the goals to be achieved. You will want to discuss this with insurance and/or accounting professionals who can help you assess the cost-benefit considerations. Additionally, you may need to consult a lawyer and/or a certified public accountant, especially if you are considering philanthropic or legacy goals.

You can find useful information at websites such as or Money., which offer basic insurance explanations and calculators to estimate coverage amounts.

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