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GUARDING AGAINST THE FINANCIAL PITFALLS OF DEATH

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into paid-up policies with a smaller death benefit, thus negating the limited payment argument.

Limited-payment insurance policies are a good deal for certain people. But, when faced with a choice between a limited-payment pol- icy and a straight life policy, chances are the straight life policy will be a better fit. Again, it’s always important that you are purchasing insur- ance because you need it, not just for a tax-deferred investment. There are other types of tax-deferred investments that offer better rates of return that will suit your needs better than an insurance policy.

PROS AND CONS OF WHOLE LIFE INSURANCE

The main advantage of whole life insurance is the ability to accumu- late a cash value on a tax-deferred basis. This cash value also con- tributes to the total value of an estate when the policy is owned by the insured. You can borrow against this cash value, if needed; plus, if you no longer need any type of insurance protection, you can cancel your policy and the cash value will be returned to you.

Another advantage is that the coverage is for the insured’s entire life, unless the policy is canceled. As compared with term, the cover- age from a whole life policy is designed to last for as long as the insured is either alive, or wants it. Term policies expire after a specific amount of time. Of course, term policies can be renewed, but the cost of the premium will increase. Conversely, the premiums of a whole life policy remain level as long as the policy is in force.

Because of the savings feature, many people have said that they are forced to save because of the premium payments. Additionally, policyholders can budget their premiums over a longer period of time (with the exception of single-payment policies), thus eliminat- ing the potential risks of coverage not being affordable. This also reduces the chance that people who need coverage will be without it.

However, whole life policies aren’t without their drawbacks, too. Although term policies need to be renewed, and there is an added cost at every renewal as compared with whole life policies, term policies purchase more coverage for the amount of premium paid. This is because of the very nature of term insurance, but could be a contributing factor to the fact that term policies are popular.

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