Insurance companies often pay fat commissions to sellers who sell a whole life policy, and often, 80% of your premiums during the first year of a policy go to pay these commissions. For agents who sell a whole life policy, often 80% of your first year’s premium goes to the agent. In addition, whole-life premiums are higher, sometimes significantly, than those for term-life policies that offer similar death benefit. Therefore, doing your homework before making this important decision is critically important.

Agents will often try to persuade you to purchase a whole-life policy on the grounds that you can keep them the rest of your life, building up tax-free cash from which you can borrow in the future if need be. This is true, and it may be the best choice for you. They often, however, have hidden fees built into these policies and penalties you must pay if you cancel the plan.

Many financial planners recommend you purchase enough insurance to replace at least five to seven years of your annual income. If you have young children and significant debt, you should increase the amount of coverage. You should have enough to replace 10 years of your salary according to some experts in this case. Remember, the purpose of life insurance is to replace your salary in the case of your death. Your dependents ought to maintain their current lifestyle after your death, and funeral costs can be included in these policies. If your children become financially dependent as you age, you can also get cash by selling the policy through a process called a life settlement.

The secret is purchasing a policy with the right term. You can begin by estimating when your children will be out of the home and no longer needing your financial care. You should also consider your partner’s financial needs when calculating the type of term you need prior to your retirement age. .  may also want to cover your spouse for your lost income until what would be your normal retirement age. In addition, if you have complex estate-planning needs, you might  need life insurance beyond the usual retirement age.

Finally, you’ll obtain the cheapest rates, the younger you are and healthier you are when you purchase life insurance.  Therefore, financial planning including life insurance should begin now if you have dependents. The longer you wait, the more expensive your policy will be.  

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