The wrong life insurance can waste your hard-earned dollars

Consumer Reports News: February 22, 2013 10:38 AM

Parents need life insurance for one reason: To provide income for your family if you die. As young parents on a budget, you'll be wasting money if you try to use a life insurance policy as an investment. There are better ways to grow your nest egg.

Life insurance falls into two major categories--term and permanent. Term is the type you want. It provides a death benefit if you die within a set number of years and typically provides nothing if you live beyond that time. It also provides far more coverage dollar for dollar than permanent insurance, which is also sold as whole, universal and variable life.

Whatever the name, permanent insurance is a mix of term life insurance and an investment account that pays a benefit when you die, or pays the built-up cash value if you liquidate it before your death. That may sound like a good deal, but permanent insurance is a poor investment. You'll do much better socking away your long-term savings elsewhere--401k, for example, will give you a better return.

To learn more about smart insurance choices--health, disability, car, and homeowners as well as life, read Parent's guide to every kind of insurance. And to keep your old paperwork safe, our buying guide and Ratings for paper shredders will help you find the best model for your needs.

Artemis DiBenedetto

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