An Introduction to Mutual Fund Fees

A mutual fund represents money contributed by multiple investors. That money is managed by an individual, or more likely, a whole slew of individuals. Not surprisingly, those folks who help manage and oversee your money do not do it on a volunteer basis. They get paid. Do you want to guess who pays them? You do – through your fees assessed by the mutual fund. As an investor, mutual fund fees is one of five things everyone should know about mutual funds.
What are the Different Mutual Fund Fees?
When you look at the mutual fund prospectus, the mutual fund is required to disclose all its fees. In addition, they will include a chart that shows you how the expenses and fees would impact a $1,000 investment.
Remember, fees are not inherently bad. But, there are many people who think this is one of many problems with mutual funds. The mutual fund company does need to pay for the cost of overseeing your money. Exorbitant fees can cut deeply into your potential profit. You should also remember that all mutual fund companies charge fees and they simply adjust or allocate the fees in different ways – often with the hope of making you think you’re not paying any fee.
Loads
A load is a sales commission paid either when you buy the mutual fund or when you sell it. When the sales commission is added at the time you purchase the fund, it is called a “front-end load”. Not surprisingly, when the commission is added upon selling, it is called a “back-end load”.
Load payments typically end up in the hands of brokers or sales agents. I left my previous financial advisor because he could not recommend something without a load.
The biggest problem with a load is it automatically limits how much of your money will be working to increase your gains.
Management and Expense Fees
The management fees cover the cost of overseeing your investments. They help pay for everything from computers, to mailings, to salaries. Just think big offices and high overhead, and you know where this percentage of your money is going.
An average expense is between 0.25% and 1.5%. Most people suggest investors avoid funds that have fees over 1.5%. My personal feeling is that if you are paying a higher management fee, but you are getting better returns, then the expense fees really do not matter.
12B-1 Fees
Typically if a fund does not charge a load, you can expect that they have a higher 12B-1 fee. This fee covers advertising and marketing. Since the mutual fund company did not offer a load to a financial advisor to encourage you to purchase from them, they now use the investor’s money to try and get more investors.
Hidden Load Fee
When a mutual fund does not charge a load but then charges a higher 12b-1 fee, this is called a hidden-load fund. They are not technically charging you a load, but they are making the same amount of money by restructuring their fees. As always, due diligence by the investor is necessary.
Exit or Redemption Fees
These are fees charged when you sell your shares. The fees may be a flat rate or a percentage. In order to discourage short term trading some funds will have a mandatory minimum holding period. If you sell before that time frame you can expect to pay their specified fee. Other companies encourage you to hold their funds by scaling the fees back year after year.
For example, if you sell after year 1, you pay a 5% fee. If you sell after year 2, it is 4%. Year 3 = 3%. Year 2 = 2%. Year 5 = 1%. Year 6 + you pay no fee.
Brokerage Fees
It is important to remember that all the fees listed above are fees charged by the mutual fund company. Your broker might also charge additional fees. These fees might be annual fees, purchase fees per mutual fund, and their own short term trading fees. Thus, in addition to researching the mutual fund fees you must also be familiar with the fees imposed by your brokerage. You will need to find the best investment brokerage for mutual funds.
As with every investment, it is essential that you know and understand the fees. Even within a mutual fund type you can have different share types (A, B, C) – each with their own fee structure. You must have a personalized investing plan and then choose shares that have the lowest fees according to your plan.
Because of all of the fees associated with mutual funds, some investors prefer index funds. These funds typically have very small fees (less than 1%). Either, way if you are a beginning investor it is important to do some preliminary research before you start investing.

Life Insurance with a No Exam Policy - Learn the Truth about It

Do you want a life insurance without giving a medical test or examination? If the answer is yes, you will get many policies that will not take a medical test and not ask you a single medical question. Surprised? Yes, to confirm this, try searching the Internet and you will see it for yourself. There is cutthroat competition in the market these days and every company is trying to increase its market share.
This is the right time to buy the policies such as the life insurance with no exam policies. Most people who opt for the no exam policies are people who have been denied a policy due to medical reasons or who have constantly failed the medical examinations that were conducted by the life insurance companies. With the no exam policies, you can be sure that you cannot be turned down-all you need is a little bit of more money.
Most people when they are in their twenties are not aware of the policies or they are mostly ignorant about the life policies. Then why it is not as popular as it should have been? Indeed, very few people buy life insurance with no exam. Those who are reasonably healthy opt for ordinary term insurance because the life insurance no exam rates are exorbitantly high.
Only those who have some medical problem that will make them uninsurable buy this kind of policy. They have realized the importance of policies too late in their life and find life coverage at a high rate is better than no coverage at all. You do not need to take my word for it. Receive quotes from as many sources as possible. You will soon realize the truth behind my words. This no exam rates may be exorbitantly high, but not without reason.
Try to understand why it is so. Normally, you have to fill up a quote form, which contains queries like:
• If you have ever used tobacco in any form
• If you have quit, how long ago
• If you have any chronic or hereditary disease
• If your parents or siblings have had such diseases
• Personal informational like name, sex, age, height and weight etc
• Basic quote information like coverage period or coverage amount On thing to be noted is that the death benefit is limited during the first, second, and third years of the policy.
The wholesale insurance website needs some information before they award you with the guaranteed whole policy.
The information needed is: - Basic quote information
- Pre-screening health questionnaire
- Personal information
The questions asked in the basic quote information section will help you give the best quotes. Make sure that when you get the insurance quotes, you have a good look at them and then decide on what you want. If you have any trouble in understanding the quotes, pick up the phone and talk to a phone agent immediately. In the basic quote information, you will have to give your state details, date of birth, gender, height weight, and coverage amount. At the same time, it is necessary that you should not lie while submitting your personal data. Answer these questions honestly; even if that results in higher rate because if they find out that you have not been honest, they may refuse to pay the death benefit. Honesty has always been the best policy, more so in the case of quotes.

Life Insurance to Protect Your Loved Ones From Future Uncertainty

Life insurance protects your near ones from future uncertainties, like death or severe illness. It is actually a contract where your insurance provider guaranties protection for your family when you will be not there. You are paying for this death benefit in terms of the insurance premiums.
In terms of affordability, term life insurance is definitely an affordable option than any of the permanent schemes. Especially if you are healthy and young then it is generally advisable for you to go for a term plan and in future convert it to a permanent insurance plan without the need of any medical exams or to show that you are in good health. In case of term scheme the term may expire without payout but permanent insurance must always payout, making it an expensive option. There is another reason that these rates are less, and that is the low commission structure of the agents in case of term life insurance plans. Again as compared to term plans or pure insurance plans one may go for whole life plan or a universal plan which tend to affordable life insurance as compared to traditional endowment plans. If one has got a risk appetite he/she can go for unit linked plans where one can go for an affordable life insurance plan in comparison to traditional endowment plans where one can get a decent to high return on his/her money with decent life coverage, but subject to market conditions.
Again almost all the employers in the organized sector today provide group insurance coverage to their employees. This is another way in which an individual can get a decent coverage for a very less cost or sometimes even zero cost. These type of insurance coverage are really low cost depending on the size of the company, though it is advisable to have a separate individual cover in case one face a job loss or any other unforeseen events leading to ones job loss.
Lots of insurance companies design relevant and affordable policies for the low income group population. Especially in the developing countries, there are plans with or without survival benefits and death benefits with a low premium base. The livelihood of these easy and cheap plans is based upon the needs of low income socio-economic strata. You can compare the life insurance rates provided by these insurance companies to convince yourself to have a policy that you can afford. The best policies from any company are called "fully underwritten" which means that the insurance provider is going to ask you lots of questions, about your health, your family history and life style. Some companies also have a "preferred plus" rate which is even lower priced than the old preferred rates. It is not easy to get, but you can ask for it. To convince the insurance provider to take the risk of giving you such a policy, you need to show them that you are in good health and you do not take physical risks and that your family has a healthy lifestyle with regular medical checkups. One can also reduce the cost of insurance by going for it at the early age. If one delays the insurance needs then the cost of coverage will go up with his/her age.
Now to get the best life insurance rates so that you get an affordable coverage tailor made to your needs you have to collect different life insurance quotes either from the internet or directly from the different company agents. But these operations sometimes seem to be complicated due to lack of information. Hence in this adverse selection scenario the best you can do to find out the most affordable life insurance is to research and gather information as much as you can in order to derive the best suited protection for you and your family.

Life Insurance - I Don't See Myself Needing It

In many parts of the world that I know of, people do not like thinking of the possibility of their death. This rubs of on their thinking of life insurance. No one thinks they would need it.
If you have ever witnessed a family reduced to penury because of the death of the bread winner then you would see the need for every one who has any bit of love for his/her family and wishes a bright future for their offspring to have a life insurance policy.
Think of life insurance as a business plan to protect your family.
It is not at all possible to replace the loss of a loved one with financial compensation. It however makes it easier for the survivors of the deceased to live a fulfilled life in the absence of the insured thought they would feel the emotional loss for a long time to come. In fact they may never really fill the void caused by the loss but at least their quality of life would not be over turned.
There is a lot involved in life insurance that you may not understand unless you take the time to talk to an expert. Life insurers does not only benefit your family after your death. You can draw on your life policy in some situations. Ask your financial adviser about income protection benefits.
Do not be in a haste to say I don't need life insurance. It might actually have been the answer to the question or challenges you may have been having now had you gotten it earlier.
I read about a widow who told her husband financial manager "I know how much he loves me because he battled to pay the premiums so now I do not have to battle without him" What a great thing this man did while he was alive so that even in death he was still providing for his loved ones.

8 Tips Before You Buy Life Insurance

1. What types exist? - Term and permanent. Term insurance usually lasts for a period of 10-30 years, decided by you. Permanent lasts until death and also has a cash value that accumulates while you are still alive (and disappears if the death benefit is paid out).

2. Which type should I get? - Term is generally much less expensive than permanent. 80-90% of people are better off with term life insurance. If you buy life insurance (term) when your children are young, by the time the coverage ends (when they are in their late 20s or early 30s) they will not depend on your income any longer. Permanent is reserved more for special cases, such as those who look after someone with special needs or if they wish to leave an estate in excess of 2.5 million dollars (in this case the death benefit would pay for the estate taxes).

3. How much coverage will I need if I buy life insurance? - The amount you need is determined by information such as your salary, number of dependants (people that rely on your income), current debts (mortgage) and future debts (college education for your kids?). You want to make sure all this is covered with room to spare. With all of these totaled up (using an online insurance calculator), the general rule of thumb is to add 25-30% more.

4. Will I need a medical exam? - If you wish to buy life insurance by yourself, not part of an employer-offered group plan, this is important. If you are young or in good health, you probably won't need a medical exam. The older you are and the more coverage you wish to have, the more likely you are to need one.

5. How do I minimize my premium cost? - If you are a smoker or are overweight, your premiums will be inflated. Your rates can drop after being smoke-free for over a year. Since insurance companies use statistics such as BMI (body mass index) to calculate premium costs, losing weight will inevitably lead to lower premiums. Premiums often remain constant from the time that you initially buy life insurance.

6. Does the death benefit ever diminish? - In most cases, it will never decrease. One variation of variable life insurance has decreasing death benefits. If you are about to buy life insurance, it is always good to ask such a question.

7. How often do I pay my premium? - Premiums are generally paid on a annual (and sometimes semi-annual) basis. Often these premiums can be paid online.

8. Will the beneficiary of the policy have to pay tax on the death benefit? - Beneficiaries usually do not pay taxes on death benefits.

Is Life Insurance an Investment? ?

For years and years, many people viewed life insurance through a single lens, as a necessary hedge in the case of one's death to help provide for heirs, for a spouse, to help cover personal loans or business loans, etc. Life insurance for some was simply an option checked off as one of the "benefits" received through an employer, and no further thought even needed to be devoted to such a remote possibility as one's passing.

Lately, though, some advisors are recommending that life insurance be considered an "investment". Why? In part, because of volatility with the stock market-as equities (that is, "stocks") go up and down based on seemingly nothing more than investor's emotions, it's distressing to see a portfolio-especially a retirement portfolio-shrink to almost nothing.

Certain policies, however-even if they are invested in the market-carry with them certain guarantees of protection of principal, etc. Of course, the investor (in this case, the life insurance policy owner) pays for those guarantees in the form of fees and charges, but that may be a price certain investors are willing to sacrifice in return for protection of a "nest egg".

So is life insurance as an investment the way to go?

The answer is that if you are looking for whole life ONLY as a way to provide for heirs, you are often best served by purchasing a term policy in an amount that will cover major expenses (discuss this with your advisor). Those types of policies are often the most cost-effective.

If you are looking for an investment to protect a part of your portfolio, insurance may NOT be the most cost effective solution. There are exceptions, though, in terms of estate planning and gifting-for which insurance can be an excellent means to protect a portion of an estate that one is planning to pass along to an heir (meaning, a portion of your portfolio that you will not need access to for income.)

Typically, those who can benefit from insurance as an estate planning strategy are those who have an estate above the federal exclusion amount (right now, that amount is $3,500,000). When such an estate is passed along, estate taxes of 55% are assessed. However, if a portion of that estate/portfolio is as part of a permanent whole life policy, payable on the death of the owner, the beneficiaries are not assessed taxes for that part of the estate.

The other use for such permanent life insurance is "gifting"-passing along a portion of your estate to a charity or a specific heir-by making that entity the beneficiary of a life insurance policy.

If you don't fall into one of those categories-for example, if your estate is not above the three and a half million mark-is insurance as an investment not for you? You may find that wealth transfer strategies and estate planning (for any size estate) can benefit from judicious use of life insurance policies. It is worth a conversation with your advisor.

4 reasons why ULIPs score over endowment plans

Look at any advertisement for a life insurance product and chances are that it will be for a unit linked insurance plan (ULIP). Such has been the popularity of ULIPs in the recent past that they have outpaced the growth of regular endowment plans. We take a look at the most important reasons why ULIPs score over endowment plans

1. The power of equity
Simply put, ULIPs are life insurance plans, which have a mandate to invest upto 100% of their corpus in equities. While individuals have the choice to shift between equity and debt (explained later in this article), several studies have shown that equities are best equipped to deliver better returns compared to their fixed-return counterparts like bonds and gsecs. And given the fact that life insurance is a long-term contract, equity-oriented ULIPs augur well for the policyholder.

2. Flexibility
While ULIPs offer the opportunity to invest upto 100% in equity, it is also true that ULIPs provide individuals the flexibility to shift to upto 100% debt. It is entirely upon the individual how he wishes to allocate his premiums between equity and debt. This is not the case with endowment type plans- individuals can’t choose their investment avenues and have to be content with the insurance company’s investment decisions which revolve largely around debt.

ULIPs are available in 3 broad variants: ‘Aggressive’ ULIPs, which invest upto 100% of their corpus in equities, ‘Balanced’ ULIPs which invest upto 60% of their corpus in equities and ‘Conservative’ ULIPs which invest upto 100% of their corpus in debt instruments and the money market instruments*. Individuals are free to decide where they want to invest their money. For example, individuals with an appetite for risk can invest their entire money in equities while conservative individuals have the option to park their money in balanced or conservative ULIPs.

* The percentages given in the paragraph above may differ across life insurance companies.

That apart, ULIPs also provide individuals with the flexibility of terminating/resuming premiums, increasing/decreasing premiums and paying top-ups (i.e. a one-time sum over and above the regular premium) whenever possible. These options are not available in regular endowment plans.

3. Transparency
For the first time, ULIPs introduced transparency into the manner in which life insurance products were being managed. This is something that was missing in conventional savings-based insurance products (like endowment/ money-back/ pension plans). To understand why we are saying this, one has to first understand the structure of traditional endowment plans. Traditional endowment plans have been opaque in more ways than one.

To begin with, traditional endowment plans have invested a sizable portion of their corpus in debt instruments like gsecs and bonds. The quantum of money invested is not known. Individuals do not have access to portfolios of endowment plans so they never find out how much money is in debt/equities. Add to this the fact that the expenses, which form a sizable percentage of the premium in the first few years, are also not clear and you have a situation where the individual is ‘investing’ in life insurance purely on the basis of faith and little else!

Unit linked plans brought transparency into the scheme of things. Today, if an individual wants to invest in a ULIP, he knows upfront what percentage of the premium is being invested, what are the charges being levied and where his monies are being invested. This is a welcome change for the policyholder. Another advantage ULIPs offer is that they enable insurance seekers to compare plans across companies and help him buy a plan that fits well into his portfolio. Also ULIPs disclose their portfolios at regular intervals, so you know exactly where your money is being invested.

4. Liquidity
ULIPs offer liquidity to the individual. He can withdraw money anytime he wishes to once the initial years’ premiums are paid. He will not be levied with any surrender charges i.e. he stands to get the full market value of his investments, net of charges, till date. This is unlike conventional endowment plans where individuals tend to lose out on surrender charges on surrendering their policies. Besides, part surrender is also allowed in ULIPs. Simply put, part surrender allows individuals to withdraw a part of their corpus and thus keep the policy alive, albeit with some adjustments. This helps individuals tide over a situation where they need cash but have few ‘liquid’ investments at their disposal.

So does this mean that it is the end of the road for endowment plans? Not quite! Individuals need to understand the de-merits of investing in market-linked products like ULIPs. The latter are susceptible to the vagaries of markets and can burn a hole in your portfolio over the short term. So if you can’t withstand that kind of volatility, equity-oriented ULIPs are not the right investment option for you. Insurance seekers would do well to take into consideration their risk appetite as well as their overall financial portfolio before taking a final call on ULIP investments. The ideal option is to have a prudent mix of endowment and ULIPs depending on your preference for either long-term growth or stability.

6 major facts abt Endownment Plans

Till private insurance companies started operating in India, endowment insurance plans were the most popular form of life insurance. After the onslaught of private insurance companies unit linked insurance plans (Ulips) seem to have taken over.

Last year, of the new insurance policies sold by private insurance companies Ulips accounted for around 90% of the policies. This though is not the case with the Life Insurance Corporation of India, endowment policies still form a major part of the insurance policies it sells. Given this, there are certain things that individuals should understand about endowment policies.

1. An endowment policy is a combination of insurance and investment: The life of the individual taking the policy is insured for a certain amount. This life cover is referred to as the sum assured.

A certain part of the premium gets allocated towards this sum assured. Some portion of the premium is allocated towards the administrative expenses of the insurance company selling the policy. The remaining portion of the premium gets invested.

2. An endowment policy may declare a bonus every year: The money that is invested generates a certain return every year. This return may be declared as a bonus. The bonus is typically generated as a certain proportion of sum assured or life cover as it is popularly known.

So if an individual taking the policy has a policy of sum assured Rs 10 lakh (Rs 1 million) and the company declares a bonus of Rs 50 per thousand of sum assured, then the bonus works out to be Rs 50,000.

3. The bonus declared is not payable immediately: Like is the case with a stock dividend or a mutual fund dividend which is payable immediately after it is declared, the bonus declared accumulates and is payable only when the policy matures or in case the policy holder dies.

4. The bonus declared does not compound it, only accumulates: Let us take the case of a 35 year old individual who takes a policy with a sum assured of Rs 10 lakh with a term of 20 years.

The premium for this would be around Rs 49,000 per year. At the end of the first year, the insurance company declares a bonus of Rs 50 per thousand of sum assured or 5% of sum assured. This amounts to Rs 50,000. This Rs 50,000 remains Rs 50,000 for the next nineteen years till the end of the policy. The same thing happens to the bonuses declared for the remaining period of the policy as well.

5. Since the bonus declared does not compound returns are low: Extending the example taken above, let us assume that the insurance company declares an average bonus of 5% every year. What this means is that every year on an average a bonus of Rs 50,000 is declared. So at the end of twenty years, the total accumulated bonus would amount to Rs 10 lakh (Rs 50,000 x 20).

Chances of an insurance company declaring an average bonus of more than 5% over a period of twenty years are very less. This is primarily because endowment policies largely invest in government securities and after taking into account the administrative expenses of the insurance companies, a greater bonus is highly unlikely.

So at the end of twenty years, the individual gets Rs 10 lakh of accumulated bonus and Rs 10 lakh of sum assured, making a total of Rs 20 lakh (Rs 2 million).

On this he has been paying a premium of Rs 49,000 every year. This amounts to a return of 6.39% per annum, which is not great. If the individual expires during the period the policy his nominee gets the Rs 10 lakh of sum assured as well the accumulated bonus till that point of time.

6. Take a term insurance policy and invest in the public provident fund: A better way out for an individual is to take a term insurance policy. A term insurance policy is a pure insurance policy.

If the policy holder dies during the period of the policy, his nominee gets the amount of the sum assured. If he survives the period of the policy, he does not get anything. Given this, the premiums on a term insurance policy tend to be the least among all insurance policies and they provide an adequate life cover.

A term insurance policy for a period of 20 years, for a 35 year old individual, would cost around Rs 4,600 per annum. So instead of taking an endowment policy it makes more sense to take a term policy of Rs 10 lakh.

The remaining money i.e. the difference between what needs to be paid on taking an endowment policy of similar sum assured and the premium on the term policy, can be invested in the public provident fund (PPF). The difference in the example taken here works out to Rs 44,400 every year.

If this is invested every year into the PPF, at the current interest rate of 8%, the individual is likely to accumulate Rs 21.94 lakh (Rs 2.194 million) at the end of 20 years, which is nearly Rs 2 lakh (Rs 200,000) more than Rs 20 lakh he is likely to accumulate in case of the endowment insurance policy. Also the bonus on the insurance policy is not guaranteed whereas PPF guarantees an interest of 8% every year.

Life after losing everything.

Here at Real Insurance, we strive to settle on insurance claims as quickly as possible. Claims from the recent Victorian bushfires were all handled promptly and have now all been finalized. But long after the job of the insurers has finished, people still struggle to return to the normalcy of their lives before fire takes away everything they own.

This was the issue discussed on the ABC 702 Drive program recently. Host Jennifer Byrne spoke with Petrea King from the Quest for Life Foundation about life after you lose everything. One of the most poignant stories was about Petrea’s own brother, who lost his home and all his possessions to fire. Petrea told how the insurance company rebuilt the family home, and all of the family’s possessions, but it still wasn’t the same. The floorboards that the family knew would always squeaked when they walked over them were new now and didn’t make a sound. The ‘rainy day’ trackies with the familiar hole in them were replaced with brand new clothes that just weren’t the same. And that favourite book with the characteristic rip on the front page was destroyed forever.

As insurers we can replace bricks and mortar, we can fill drawers with clothes and cupboards with plates and cups. If only we could replace memories, or those feelings which bring families together and make them feel at home.

What is Life Insurance?

Life insurance is a policy that you can take out to pay a lump sum in the event of your death or diagnosis of a terminal illness. The lump sum or cover amount will be paid out to your next of kin, family or a named person. This may be liable to inheritance tax if not placed in trust, but is free from income and capital gains tax.

In the event of a terminal illness an insurer will bring forward the payment of the sum assured to allow you to address any financial needs prior to your impending death. The definition of a terminal illness is that you have less than 12 months to live. When asked, ‘what is life insurance?’ the response is normally straight forward. The plan is designed to meet an individual’s financial concerns or needs at a time when they are no longer alive. This will ensure that the dependents or outstanding financial liabilities are protected. For most people this will be the provision of a cash sum to repay an outstanding mortgage. However, there are a sizeable number of applicants who are looking to provide a cash lump sum or income for dependent children. Should premature death occur most people would like to pass on the assets of their estate unencumbered that is without the restraints of having to sell assets to clear an outstanding liability. This will ensure that an estate is passed on intact. With regards to protecting dependent children most people have life insurance so that the hopes and dreams that they have for their children can be fulfilled even if they are not around.

Do I need Life Insurance?

If you take out life insurance protection or not is up to you. People take out life insurance cover for a number of different reasons; the main ones are, to cover outstanding debts, such as a mortgage or loans and/or to provide a lump sum to help provide for family being left behind. There will be other reasons why people take out a life insurance plan and really it is down to personal circumstances. Generally it is to provide next of kin, family or a named person a lump sum in the event of your death. The key points everyone needs to remember when asking themselves ‘do I need life insurance?’ is should the unfortunate happen and you pass away are you leaving any dependents/loved ones behind and how will they manage?

By taking out a life insurance plan you will be ensuring that at a time of great difficulty for those left behind you are taking away the stress and worry of how they are going to pay off any debts and/or be providing a source of income through a guaranteed tax free lump sum. Life insurance is relatively inexpensive; it is actually the cheapest form of protection available. The cost of protecting yourself with life insurance is based on a number of factors such as; amount of cover, the number of years it’s taken for, your age, gender, smoking status, lifestyle and health. By taking out a life insurance plan, for a small monthly premium, you are providing yourself with peace of mind that should anything happen to you your affairs and/or loved ones are looked after.

How long a term?

Secrets to determining how long you'll need coverage.

Agents like to talk about policies you can keep throughout your life. What they sometimes won't tell you is that you don't need life insurance coverage throughout your life.

The secret to buying a policy with the right term is figuring out how long you need to be insured. You start by estimating when your children will be out on their own and no longer in need of your financial support.

So if your children are 3 and 5 now, you'd probably want a policy that covers you at least until the youngest is 22, so that's about a 20-year term. But this depends somewhat on your age as well.

Say you also want to cover your spouse for your lost income until what would be your normal retirement age, 65, and you're only 35 now. Then you would want a 30-year policy.

Keep in mind that insurance gets very expensive as you leave your 50s. So you may pay more to cover yourself until 65, even if you lock in a level-premium, 30-year policy when you are 35. Coverage past age 70 or so may be unattainable.

Life insurance is not a substitute for a retirement plan. You want to plan so that you'll have enough to live on when you retire, and you won't have to keep paying insurance premiums.

There are exceptions, however. People who start families late in life, or who have complex estate-planning issues, may well have a need for life insurance beyond the customary retirement age.

One more thing: Steer clear of so-called mortgage insurance policies, which pay off the balance on your mortgage if you die. The problem is that you are paying for a steadily declining amount of coverage, as you pay down your mortgage. It's best to include the mortgage payments in your calculations when determining how much coverage you need.

Types of policies

There are two basic kinds of life insurance policies: whole life and term insurance.

Whole-life policies, a type of permanent insurance, combine life coverage with an investment fund. Here, you're buying a policy that pays a stated, fixed amount on your death, and part of your premium goes toward building cash value from investments made by the insurance company.

Cash value builds tax-deferred each year that you keep the policy, and you can borrow against the cash accumulation fund without being taxed. The amount you pay usually doesn't change throughout the life of the policy.

Universal life is a type of permanent insurance policy that combines term insurance with a money market-type investment that pays a market rate of return. To get a higher return, these policies generally don't guarantee a certain rate.

Variable life and variable universal life are permanent policies with an investment fund tied to a stock or bond mutual-fund investment. Returns are not guaranteed.

The other type of coverage is term insurance, which has no investment component. You're buying life coverage that lasts for a set period of time provided you pay the monthly premium. Annual-renewable term is purchased year-by-year, although you don't have to requalify by showing evidence of good health each year.

When you're young, premiums for annual-renewable term insurance are dirt cheap - as low as a few hundred dollars per year for $250,000 worth of coverage.

As you get older, premiums steadily increase. Level-premium term has somewhat higher - but fixed - premiums for longer periods, anywhere from five to 30 years.