I'm thinking about purchasing a life insurance policy. The term insurance is cheaper of course. I understand that it lasts for however long a term you designate. What happens to a 10 year policy on the 11th year. Do you get any of your payments back?

I'm trying to make up my mind to buy a term or whole life insurance policy. Wholly ignorant about insurance in general. I know if I buy term it'll be cheaper because I'll purchase it for a set amount of time... say 10 years. What happens on the 11th year if I'm still alive? Do I get any of my premiums paid back?

Term life insurance is simple, straight forward purchase. You pay for insurance coverage for a set amount of time, and that's all you get. So if the term is 10 years, if you don't renew and the policy lapses you are left without coverage, and no return of any account balance.

With whole and variable life insurance policies the premiums are higher because you are buying both insurance and an investment. The problem is that (a) it is very very difficult to understand how your investment is doing in comparison to alternative investments you could have made, and (b) the fees tend to be outrageous. For example, it's not uncommon to be charged a processing fee with every premium payment, plus a load fee on the purchase of a mutual fund which is the underlying investment, plus a redemption fee when you want your investment back, plus a penalty fee if you cancel your policy. These fees are why life insurance brokers are so hot to sell these types of policies. And to make things worse - when you redeem your policy if you have a gain in the investment you pay income tax as if it was ordinary income, not a long term capital gain, and if you have a loss on the investment (which is likely given all the fees you have to pay) you can not write the loss off on your income tax, because technically the policy is considered to be property, not an investment, and you can't take losses on the sale of property. This is something the salesmen don't mention.

My advice, and that of most investment advisers, is that if you want life insurance then you should buy life insurance (i.e. term), and if you want to make an investment then make an investment by taking the money you save with term life insurance and investing it in your 401(k), or your IRA, or in a no load mutual fund, or in stocks or bonds. Don't fall for the sales pitch of the whole and variable life policy sellers. They will talk about the tax advantages of these policies, but the reality is that you can get essentially the same advantages with smart investments. At the very least don't even think about this type of policy unless you have already maxed out contributions you make to your IRA and your 401(k) plan - that's over $20K/year of investments you should be making before considering a whole or variable life policy as an option.

Thank You that gives me a clear picture of my options.

Well said ebaines!

My father bought tons of term life as a young man in his 20s, with 3 children, back in the 40s. He was very sick with a rare condition. He later had melanoma twice. He lived to be 93, almost 30 years after the term life had expired.

I don't see a lot of people buying term life, for the simple reason that people live longer and longer. You could consider a minimal amount just in case you don't, and it's a little cushion for death expenses.

Thanks Joy - I appreciate your prositive review! I learned this lesson the hard way, having once been sold a variable life policy that I soon realized was a disaster, and then experienced the nightmare of trying to get out of it.

Have to spread some rep, they say....

Also want to mention the expensive and useless nursing home coverage (maxes out at 2 years of care) some people buy. My dad paid 200/mo for 20 years for the 2 of them, and neither used it. Medicare covers any nursing home care that they can label 'rehab,' and they will! It's only good for 30 days, but apparently it can be 'renewed' indefinitely. Same with hospice! You have to be 'terminal in 6 months or less' to get all the extras that go with hospice, so many are reluctant to use it, but that too is renewable. As far as I'm concerned? Insurance is a waste and a scam.

A lot depends on your age. Pure life insurance is term, all the others are ways to get you to pay more and the agent gets more commission. As you get older, however, the term cost increases. I followed ebaines theory. Get lots of term when it is cheap-250 or 500K, put all you can in a 401K or an IRA and when you pass on, typically, you will have far more than needed for burial. Consistent reasonable large account investment in a no load mutual fund, Wellington from Vanguard or Equity Income from T. Rowe Price, for example, over long times will produce a $1,000,000+ nest egg!!

Actually, not to disagree, and this is of course a little old data, but as a licensed insurance agent, almost all we ever sold was term, (we wanted to sell other because of higher commissions)

But term is very popular for younger people to cover the needs of a family if they died. Tf they have children, they can buy 500,000 in coverage fairly cheaply, and it helps replace their income if they die. Almost anyone who buys a house, buys a form of term to cover the mortgage if they die.