Tailor-made Coverage

Here's how you can insure your life insurance is the proper fit for you

if you want coverage to continue.

  • Permanent insurance. These policies, which include whole life, universal life” and variable life insurance, cost thousands of dollars a year compared to term insurance, which costs hundreds. The additional premiums go into the “cash value,” a tax-sheltered investment account. As you grow older, and premiums rise, earnings from the cash accumulated can be used to offset these costs. Therefore, these policies are designed to stay in place as long as you live.
  • Which type is best for you? “Families of moderate means should buy term insurance, which costs less,” says Creuzot.

    “They generally have little need for life insurance after their children are grown and living independently.”Hicks says that fulfilling your needs comes first: if you require a certain amount of insurance coverage and the only way to buy that much insurance is with a term policy, you should buy term. “Many term policies may be converted to permanent policies in the future,” Hicks says. Usually, a policyholder can exercise this
    conversion right at any time within the first five to seven years, depending on the insurance carrier.

    On the other hand, families that expect to leave a taxable estate may want to keep their life insurance in place indefinitely. (Under present law, a married couple can leave up to $1.3 million worth of assets without owing estate tax, assuming careful planning has been done, and this limit will rise to $2 million after 2005.) Life insurance may be used to provide money for estate taxes so other assets can be passed on,in- tact, t
    o the next generation. “People are living to be 95, or even older, these days,” says Wiley. “If they want to be sure they’ll always have life insurance, they’ll need a truly permanent policy.”

    The Bufords, for example, each bought permanent life insurance policies. “These policies will serve several roles,” says Creuzot. “For now, they offer family protection in case of a premature death. Later, the cash value can be tapped for supplement retirement income, if necessary.” Given that the Bufords will have a taxable estate, the policies will provide the necessary estate liquidity to pay taxes at death. In the future, the policies can be transferred to a life insurance trust to remove the policy proceeds from estate taxation. By making such a transfer, the liquidity is available for taxes. However, the proceeds providing liquidity don’t exacerbate the estate tax problem.

    The Bufords bought variable life policies from Provident Mutual Life Insurance Co. Variable life plans allow consumers to invest their premiums in “subaccounts” that resemble mutual funds.

    “We chose variable life insurance for another reason,” says Deena, 40, an occupational medicine specialist. “In Texas, such insurance policies are protected from creditors. Doctors are vulnerable to lawsuits, so we decided to do our investing as part of an insurance policy for the extra protection.”

    Use a competent agent to help you find the best policy, especially if you have health problems. If you’re in excellent health, and particularly if you don’t smoke, you may prefer

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