Choosing the Best Whole Life Policy for Your Needs

Depending on your age, general health and lifestyle, you may need a life insurance policy that will cover one person or a couple, solely as a death benefit or for an investment. You may need a benefit that will cover just a few outstanding debts or provide your dependents with a standard of living for many years.

Short Term Need
To determine how much whole life insurance benefit you need to leave to your heirs, you first need to add up the loan balances for autos and any lines of credit. Credit cards, student loans, home mortgages and home equity lines of credit should all be included.

Add to your outstanding credit balances expected funeral and burial costs, medical bills, estate taxes and fees. Combine this with any one-time gifts you’d like to make. These may be a lump sum of money to each grandchild or a charity you appreciate.

The sum of your outstanding loan balances, debts surrounding death and singular gifts is your short term need.

Long Term Need
Long term needs are not quite as simple to figure. How much family income do you provide annually? Finance professionals recommend no less than two years worth of household support.

Factor in child care costs that your spouse may need to continue to supplement the family income after your death. Again, two years child care support should be the minimum.

If you are the provider of financial or physical care for a family member with severe or expensive medical needs, add five years of these costs to your long term need.

College tuition is another consideration. If you are a parent or guardian of minor children, you’ll need to decide whether or not you’d like to pay for their higher education in whole or in part and add this to your long term need.

Add the amounts you’ve chosen for family income, child care, medical care and college tuition. This sum is the long term need of your heirs. From this you may be able to subtract social security benefits, pension plan, retirement benefits and investment income your heirs will be entitled to. Finally, add this number to your short term need. This is the total death benefit you need from your whole life insurance policy.

Riders and Terms
Once you’ve determined how much you need, you have just a few more things to consider. Riders are additional provisions in your policy that allow for exceptions to the general whole life rules.

Accelerated death benefit is usually added if you would like to be able to withdraw up to 90% of your policy upon being diagnosed as terminally ill.

Accidental death benefit is usually an additional percentage or flat amount of the policy benefit should you die as the result of an accident. This rider is often sold hand in hand with a dismemberment rider, called AD&D. The dismemberment rider usually provides for a smaller benefit should you loose sight, hearing and/or a limb.

Guaranteed insurability rider protects the insured if he or she becomes unable to qualify for insurance in the future.

Paid-up additions are typically added if you anticipate withdrawing some of your policy later in life. You can usually make a withdrawal of dividends earned by your policy once per year if you have a PUA rider.

Make sure you understand the terms, conditions, provisions, rates and riders before applying for a whole life insurance policy. This may not be a matter of life and death, but your choices when selecting a whole life policy will surely affect your heirs’ lives after your death.