Fool's School: Who needs life insurance?

Life insurance isn't for everyone. If you're single or have no dependents, for example, you probably need little or no life insurance. You'd do well to take the money you might have paid in insurance premiums and invest it instead. But if anyone depends on your income, life insurance can protect it.

There are two main types of life insurance: "term" and "cash value."

With term insurance, your premium payments are applied entirely to the cost of the insurance, and coverage can easily be dropped when you no longer have dependents. It's a very simple and effective option.

Cash value insurance, meanwhile, encompasses a wide variety of financial products, such as whole life, universal life and variable life. These combine term life insurance with a long-term, tax-sheltered savings plan. The most important thing to understand about these policies is that they're designed to be held for life. There are usually significant upfront charges associated with setting

up the savings plan, investing the money and paying the agent's commission.


Despite these charges, tax-sheltered savings can still catch up to taxed investments and begin delivering a real advantage -- but that can take 10 to 20 years, and it isn't always worth it.

Never opt for cash value insurance without doing a lot of homework. Don't let an aggressive agent sway you with confusing presentations and emotional arguments. ("Think of your children!") Remember that term life can last as long as you want, via guaranteed renewable policies.

If you're attracted to the investment portion of cash value insurance, know that you can always buy less-expensive term insurance and invest the difference on your own. You stand a good chance of outperforming the insurance company, too.

Don't make the common mistakes of buying more insurance than you need or the wrong kind of insurance. You want to protect and replace the income stream that would be lost if you die, but you don't need to set up a lottery-like payout on your death. Learn more at and, and look up some prices at

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