Buying Life Insurance

Many insurance experts believe wage earners should buy life insurance only if they have dependents. They recommend that a family with two or more children have life insurance equal to about four or five times the family's annual income.

Authorities disagree on which type of life insurance a person should buy. Some experts recommend whole life insurance because the premiums remain fixed for the lifetime of the insured. They point out that whole life insurance results in forced savings and so may be attractive to people who find it difficult to save. The cash value of the policy can be borrowed against, or the policy can be surrendered for its cash value.

Other experts prefer term life insurance because it provides the same amount of protection as whole life insurance but does so at a lower cost. They also criticize the low interest rates paid by many companies on the cash value of traditional whole life policies. These experts point out that a policyholder can earn more interest in other ways.

Insurance experts recommend that a person who wishes to purchase life insurance consult a guide called the surrender cost index. This guide enables a potential buyer to compare the costs of some similar policies offered by different companies. Many states require insurance companies to furnish the surrender cost index to potential buyers.