The Basics: Term vs. Whole Life Insurance

Carrie Schwab Pomerantz
Posted: Dec 20, 2012 12:01 AM

Whether or not life insurance is important once the kids are grown requires a closer look at your overall financial situation. For instance:

--Will your assets cover your liabilities? You may not need to provide ongoing income for your kids, but you don't want to leave them in a bind either. Life insurance can help cover immediate cash needs for things like medical or funeral costs. It can also cover your liabilities, so outstanding debts don't completely deplete your assets. If you have considerable assets and few liabilities, life insurance may be unnecessary. But if your heirs would have to sell your assets to pay your debts, hanging on to your policy might be a good move.

--Are estate taxes a concern? A life insurance policy can be a good safety net. For instance, if your estate is primarily illiquid, meaning it's tied up in something like a family business, real estate or farm that you don't want to sell, a life insurance policy could cover the estate tax bill. Or, if your estate is very large, you could decide to lower estate taxes by leaving a sizable portion of assets to charity, and still provide for your heirs through life insurance. Another thing to consider is that, while a beneficiary doesn't pay income tax on life insurance proceeds, if you are the owner of the life insurance policy, its value is included in your gross estate for estate tax purposes. An irrevocable life insurance trust is an alternative to discuss with your estate-planning attorney.

--Do you own a business? Life insurance can play an important part in providing cash flow in the event of the death of a business owner. If you have your own business or have a business partner, talk to your financial advisor about how life insurance factors into your long-range plans.

--How much is enough?

How much you'll need depends on your assets, your cash needs, how much income you want to replace and estate planning considerations. First, add up the projected financial need, and then subtract your accumulated assets. If you have coverage through your employer, subtract that amount, too. The remainder is roughly the amount of life insurance you may need.

Talk to an advisor

If your financial situation is simple, you may not need life insurance once the kids graduate. But if your financial situation is more complex, you may still need coverage. A word to the wise: life insurance products can be complicated. Before you make a final decision, be sure to talk to an objective third party such as a financial advisor -- and then consult with a trustworthy and knowledgeable insurance agent.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at