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Is it common to have both term and whole life insurance? Sort of a hedge?

I bought them from an agent 15 years ago, somehow it seemed to balance the pros and cons of each. Now I've applied for another term, and wonder about dropping the whole life. Sonya, I didn't understand that link. Was that one page supposed to be "the basics, step-by-step". It doesn't really explain much. Sonya, I didn't understand that link. Was that one page supposed to be "the basics, step-by-step". It doesn't really explain much. Sonya, I didn't understand that link. Was that one page supposed to be "the basics, step-by-step". It doesn't really explain much.

Public Comments

1. Some people do have both. It depends on your current and anticipated needs and goals. People generally get a term policy for immediate needs, such as providing for their family, and a smaller permanent policy for long term needs, such as a burial policy. Also, you might have developed a health condition which would prevent you from getting another term. However, whole life is seldom recommended; most people will go with a universal or variable life policy if they want a permanent policy. Again, that depends on your situation and no one here will be able to advise you. Talk with the agent that sold you your second term. The agent can explain how the plans work. Since you've already paid into the whole life for 15 years you may not find it cost effective to change. If your financial situation will provide for your needs after the current term policy expires you may consider dropping the whole life.
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3. Many people do this. I'm not sure it was properly sold to you though. Think of it as less of a hedge and more like having multiple needs. Term insurance for lost cost, high dollar coverage for limited time needs like income replacement and debt protection. Whole life insurance for higher cost, lower amount coverage for final expenses. Universal life insurance for estate and tax planning needs. Some people need both for different needs, but I'm not sure you have really created a hedge against anything. In fact many term policies allow you to convert to it to a whole life policy if your needs changes and you are under a certain age. If you have adequate savings for your final expense needs then you may not need whole life insurance. If you have large savings and don't really have any financial dependents then you might not need the term insurance anymore. Not sure if I made my point clear, but essentially you need to always tie a specific need or needs to your life insurance coverage. Otherwise you may be improperly covered against your risks.
4. A combination of both is ussually a good thing. Term is cheap but gets more expensive in the end and eventually expire. The cost of dying (funeral, taxes, lawyers fees, etc) will never go away, which is why whole life is important. There is no one size fits all solution for peoples situation. Depends if you're looking at creating a legacy fund, covering debt, making sure a spouse is taken care of, how many kids need to be taken care of, if there is a buy/sell agreement that needs to be financed, etc. or if it's just to cover the costs of dying. Quick and easy answer? If the need of the insurance is less than 20 years and won't extend past your 80th birthday (when most term insurances expire), go with term. If the need goes beyond 20 years or your 80th birthday, go with whole life. Best bet is to contact a broker who can analyze your situation and show you the pros and cons of both. Don't go to a company that only promotes one or the other, and if you really want to, check out 2 or 3 companies to make sure the advice is good and consistant. The decision could litterally be worth hundred's of thousands of dollars to your family...take the time to make the right decision.
5. Most people (agents) look at whole life plans as an investment tool. My personal take is go with an affordable term life plan and put the $$ you pay towards your whole life towards paying your home off early. The savings you'll net from paying your mortgage off early will beat most whole life insurance yields. http://www.texastermlife.com
6. Its not common that people own both types of life insurance. They usually own one or the other. Some own many of one type of life insurance called cash value life insurance because the agent said its a good plan to save for retirement, put the kids in college, plan for a big vacation, etc. I'm not sure if you fully understand the pros and cons of each, but if you don't, here's the real truth behind each type: Whole life insurance pros: 1) Provides coverage until you reach a certain age (usually around age 100). If you get to live that long, your policy expires and the company will pay the cash value to you. 2) Builds cash value in which you can borrow anytime. 3) Premium remains level. Whole life insurance cons: 1) Premiums are very high 2) Cash value does not grow in the first 2 years. After that it gets a low rate of return between 1-3%. 3) If you want to withdraw money from the cash value, loan interest of 6-8% will be charged monthly until you put the money back. When you pay the interest, that interest goes to the company, not into your cash value. 4) If you die someday, the insurance company keeps your cash value, but at least they pay your beneficiary the face amount of the policy (less any missed premiums or loans taken from cash value) Term insurance pros: 1) Premiums are lower than whole life. 2) Premiums remain level during the initial term. 3) Allows you to save your money elsewhere Term insurance cons: 1) Premiums goes up when you renew the term. 2) Life insurance industry doesn't particularly like to sell it or give information about it. Personally, I own a 30 year term insurance. I pay about $20/month for $250,000 coverage when I bought the policy at age 25. If this was whole life, I think my monthly premium would be around $50/month. At the same time, I also invest my money in mutual funds that are inside my Roth IRA. I also invest in mutual funds that are outside of any retirement plans. I don't see how anyone would have a need for any type of permanent life insurance. Life insurance's purpose is to replace the breadwinner's income. But most people think life insurance is an investment or only a product to pay for funeral costs. What they forget to think about is the mortgage they still have, other debts such as credit cards to pay, property taxes, basic survival needs (food, clothing, shelter), and money for the kid's future (college). Most people who own whole life insurance usually have $100,000 coverage. I don't know where these people live, but how long is $100,000 going to last the family? If you live near areas that has a high cost of living (such as New Jersey and New York), that $100k is not going to last very long. If people buy term and invest their money properly, in 30 years they probably don't even need life insurance at all. If they still need life insurance in 30 years because they still have debts to pay, they probably don't need it for that much longer.