The type of insurance appropriate for you depends on a number of factors, including your age, how much you are able to spend, as well as the length of time and the purpose for which it is needed.

As a general rule, if you are under the age of fifty and need insurance coverage for a limited period (until children finish college), term insurance would be the most appropriate for you.

If you are over the age of sixty, and have a permanent need for life insurance (payment of estate tax, qualization of your estate among many children, etc.) a permanent product like whole life, universal life, or variable life would be more suitable for your needs.

It is extremely difficult to be a smart consumer when it comes to life insurance. Insurance policies tend to be like snowflakes, with no two alike. It is impossible to compare them. This is true even for term policies where the only thing being purchased is a simple promise to pay a death benefit. Compounding the problem is the fact that you cannot blindly rely on the advice of your agent, whose commission depends on the type of policy sold. The key is to obtain the advice of a trusted advisor and to ask the right questions to keep him honest.

There are no absolutes when it comes to buying insurance. You will need sound advice when choosing among the following options:

TERM INSURANCE

Term Insurance is the least expensive form of insurance, since it insures against the loss of life for a specified period of time. Term insurance is preferred you are under age fifty, need a large death benefit and cost is an issue. The policy does not build up value from year to year. If you stop making premium payments, the policy simply lapses. As such, term insurance has no “cash surrender value.” You can choose the length of time you intend to keep the policy. You have the right to continue the policy during the guarantee period without evidence that you are still insurable. You can elect a one, five, 10, 15, 20, 25, or 30-year term. The longer the guarantee period the higher the annual premium. Most term insurance is convertible to a permanent policy with the same company without evidence of medical insurability.

WHOLE LIFE

Whole Life is a form of permanent protection that combines a death benefit and an increasing cash surrender value. Although the premiums are substantially higher than term insurance, whole life can be very economical for those with a long-term or permanent need for life insurance. Overtime, premium payments may be paid from the policy’s cash reserves. You may also elect to reduce the death benefit if you are unable or unwilling to make future premium payments. If the policy is participating (that is, there are dividends payable), you may be able to use the dividends to help you pay the premiums or to otherwise enhance the benefits of the policy.

UNIVERSAL LIFE

Universal Life is a hybrid form of permanent insurance. Basically, universal life is term insurance with a “side-fund.” The side fund is an investment account that holds general short-term interest-sensitive assets of the insurance company. Universal life premiums are lower than those for whole life, but higher than term insurance premiums. Universal life offers permanent protection at below-whole life cost. As with all permanent products (whole, universal, and variable), the growing value of the side fund is used to offset the higher cost of maintaining the death benefit as you age.

VARIABLE LIFE

Variable Life is permanent insurance with a side fund is invested in mutual funds. Variable life is attractive to people who believe that in the long run stocks will outperform other investments. Many companies have combined the best features of universal and variable life insurance into variable universal life insurance, (“VUL”).

TAX ASPECTS

Life insurance death benefits are generally received income tax free. Although life insurance is included in the decedent’s gross estate for estate tax purposes, no estate tax is imposed when the proceeds are paid to the surviving spouse (unless the surviving spouse is not a U.S. citizen) on account of the “unlimited marital deduction.”

Large life insurance policies should be owned in an Irrevocable Life Insurance Trust (“ILIT”) if they would otherwise cause the insured’s estate to be taxable.

If one of the deferred settlement options is chosen, a portion of each payment is an income tax free return of the original proceeds, and the balance is taxable to the beneficiary as interest income. The insurance company will annually provide you with Form 1099 indicating the taxable portion of the distribution (a copy of Form 1099 is also filed with the IRS).