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out to help your family cope should be your primary consideration, not the potential return on investment.

Don’t buy term because you’ve been told it’s the only game in town. The “term versus permanent insurance” debate rages. Term insurance, for which you pay only for the death benefit, may be the best fit for many people. However, other types of policies, such as universal life, whole life, or second-to-die policies, may be a better choice in certain situations. Choose the insurance that’s right for you. Don’t pick something just because you’ve heard it’s what everyone should buy.

Don’t confuse illustrations with reality. Life insurance illustrations—the predictions of why your policy will be self-funding, or how much your policy will be worth at some future date—are designed to show how much cash value a policy will build over time. And a lot of insurance representatives got their wrists slapped because many of those illustrations implied consumers could count on their policies to be self-funding within a specific—often too short—period of time. But if you haven’t yet heard the news, illustrations are only projections of what may happen. They are not guarantees. The company’s rates of return may decline and earnings may not be sufficient to cover the premiums in the future. So don’t count your chickens.

Don’t forget to check back to make sure you’re still well insured. At least every year or two, re-examine your policies to be sure they are still doing the job. If you got married, divorced, had a baby, or had a big jump in income, the amount of coverage may no longer be adequate. Or you might need to add a second, different type of policy, to meet new needs. Or you may be able to drop some insurance because your mortgage is paid off and your children are all independent.

Don’t forget to change beneficiaries. Oyyy! I hear this one all the time. People, if you get a divorce, remarry, have a new baby, or if your partner dies, you need to review your insurance to make sure you’re not leaving a stash of cash to nobody—or worse, someone you hate! Imagine seeing the death benefits from a policy on your recently deceased common-law spouse go to that person’s former spouse instead of you. Heads up. This is a far more common mistake than it should be when you consider the consequences.

Don’t needlessly replace a policy. Sometimes it is appropriate to drop one type of life insurance policy and replace it with another, especially if your life circumstances have changed. But be careful about dropping a policy just to get a “better-performing” policy or for a cheaper premium. “Better performing” by whose standards? And does cheaper give you everything you had and may need? The flip side of this is people who automatically renew their term coverage, even when the reason for having insurance has grown up and left home.

Don’t name your estate as the beneficiary of your insurance. Insurance benefits are free of income tax to beneficiaries, but they face probate fees if the benefits become part of the insured’s estate. Name a person (or people) as beneficiary—and not your estate—on your policies.

UNDERSTANDING YOUR CHOICES

Insurance doesn’t have to cost an arm and a leg. If you buy young enough, it’s cheap.

I’m going to use the example of $300,000 in insurance on a man (since they’re more expensive) who doesn’t smoke. If you were to buy a 20-year-term policy, protecting your family from age 25 to 45, the premium would be only $287 a year, or less than $24 a month. Hey, we’re talking a case of beer here. But wait until you’re 39 to buy the same policy and your costs go up to almost $400 a year, which isn’t exactly a budget killer, unless you want a permanent insurance policy. Then the difference in the numbers is more significant. Buy a permanent policy at 25 and you’ll pay about $1,645 a year, or $137 a month. Wait until you’re 39 and the price goes up to $3,025 a year, or $252 a month.

Just because term insurance is cheaper doesn’t make it better than permanent (whole life or universal) insurance. The type of insurance you should buy is primarily dependent on three things:

The amount of insurance you need.

How long you need that insurance to be in place.

How much you can afford to pay.

Term insurance provides protection for a predetermined period of time (perhaps 5, 10, or 20 years) or until a certain age. However, many plans end at a specific age, such as 65, 70, or 75, so if you’re looking for longer-term protection, term insurance won’t cut it. When the term of the contract expires, your coverage ends unless you renew the term. Each time the term is renewed, the premium goes up. So on the term policy above for the guy who bought a 20-year term at age 29, if he needed to renew for another 10 years, the premium would jump from $304 to $552.

Think of term insurance as an expense, like rent. While it will give you comfort and peace of mind, it accumulates no residual value. If you want coverage to last your lifetime or want to use insurance to build assets, term insurance isn’t the right choice. For while term insurance is cheaper than permanent insurance, that’s only because the statistics are in favour of the insurance company. With permanent insurance, the company is going to have to pay out, it’s only a matter of when.

Whole life and universal life insurance are permanent, remaining in place until death. With whole life policies, the insurance company does the investing. (People debate that they don’t do a very good job of it, but they are purposely conservative, and with the recent swings in the market, you can see why.) With universal life, you have much more control over the types of investments the money is going into. The premium is generally the same for the life of the policy, so the annual