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Ask The Experts: The 'Real Deal' on Life Insurance

Q. After my brother's death about 11 years ago I bought a whole life policy. When my children were born I also thought it would be good idea to get them some whole life policies too. Now I am thinking that was not such a wise decision. I currently have a $100k policy and pay ~$67/month. My two older children each have $75K and it is costing me ~$32/month for each. Should I keep them??? or cash them out and get a term policy? The surrender value on mine is about $4500 and for my children it is ~ $300 & $600. -Ady, IL

A. Ady - Here's my 'real deal' on life insurance: It exists to protect those who depend on your income or other benefits of your labor. Now, I hope you're not putting the kids to work so young--of course not!--hence, there is no need for them to have life insurance.

Think of it this way, what does your family have to lose financially if they lose you? As a wage-earner (are you sole or primary?) they would lose a lot, hence the need for life insurance to help them maintain a similar quality of life when your paycheck goes away. If your wife works, the same may go for her. However, even if she doesn't work, you would need to get a smaller policy on her as you may need to hire someone (or two or three) to cover the role she plays in the home as caretaker/chauffeur/personal-assistant/home-manager, etc.

The better move to protect your children and their future is to first make sure that you are fully funding your retirement (so they don't have to take care of you in your old age) and that are not in credit card debt and that you have ample emergency savings. Then, consider setting money aside for their education. That's a whole 'nother kind of insurance for their future!

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Carmen Wong Ulrich is the host of On The Money