Whole life is a life insurance product that combines an investment component with the straightforward coverage provided by term life. Rather than spreading the expense of your premium over a specific period of time (as in term life), the premium is spread over your entire life. You may be researching your life insurance options and hearing experts say that term life is the best choice. Term life is a more simple form of life insurance, but the best choice for you is the policy that fits your circumstances.

There are different types of whole or permanent life insurance products. These products are distinguished from term or time-limited policies, since the policy has two elements. The whole life policy has the fixed death benefit similar to the term policy, and it also has an investment component. The payment to your beneficiaries is either a combination of the fixed death benefit and the income-producing investment turned to cash, or the face value of the policy.

As you shop for insurance, the whole life option includes evaluating the portfolio of the insurer's investments, as they will have control of that money. As the cash value of the investment portion increases, you may borrow a portion of that money while you are still living. If you should stop making payments on your whole life policy, the policy would lapse, but you would still receive the built-up cash of your investment. The specifics of your policy will detail that option.

Another advantage of the whole life policy is that, as the investment portion of your premium earns money, your premium may go down. It's even possible that the accumulated income could become substantial enough to take the place of your annual premium payments. However, there are no guarantees since insurance company investments tend to be very conservative.

It's the topic of investing that makes permanent life policies more complicated than term life. There are different types of policies with an investment option to consider:

• Whole Life: Your insurer may promise an investment growth rate that will be conservatively low. If the company is able to exceed those earnings, they keep the extra money.
• Universal Life: Your insurance company promises to pay more if the investment earns more. This means the growth rate is no longer fixed as with whole life.
• Variable Life: This option takes the investment portion of the premium and places your money into a mutual fund. Now, instead of just getting an annual statement from the insurance company, you also get a prospectus and you can decide where your funds will be invested.

An individual who is professionally established and financially secure is likely to appreciate the benefits of the whole life policy. They will probably not struggle with the annual premium, which will be consistently higher than a term life policy due to the cash value plus the investment potential of the policy. However, whole life is not for everybody. Young families with limited disposable income will typically find the premiums of a whole life policy too stressful on their budget. For more information on choosing a life insurance policy, see the American Council of Life Insurance bookletWhat You Should Know About Buying Life Insurance.

If you already have a permanent life insurance policy, consider hanging onto it. You may want to add to the policy or purchase other life insurance products to supplement your changing needs. As you explore your options for life insurance, many factors need to be considered. Create a profile that describes your current financial situation and, based on your circumstances, begin to draft a financial plan detailing the changing needs of your loved ones over the next 10 to 20 years. If your unique circumstances make whole, universal, or variable life insurance the best choice for you, these types of policies will offer you the flexibility of a guaranteed benefit and the opportunity to earn more cash value over time through investments. For more information, see the New York Better Business Bureau's article onLife Insurance and the National Association of Insurance Commissioner's10 Things You Should Know Before Purchasing Life Insurance.

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• Life Insurance Basics - Life insurance ensures that your loved ones are taken care of in the event of your passing, and enables them to take care of your effects that you leave behind. Which type is right for you? As part of your debt management and financial planning, understanding the basics about life insurance can help you understand the differences and make sound decisions that are good for your loved ones and your budget. From budgeting in a premium to assigning beneficiaries, having life insurance is not an expense, but an investment for today and into your golden years.
  
  
• Term Life Insurance - Term life insurance is affordable, especially for those who are young with families. However, some see it as a gamble. This insurance is only good for a certain length of time--if you live past the term's expiration date, the insurance company keeps the money you've paid. When planning your financial future, repairing your credit, or engaging in debt consolidation, understanding affordability vs. tradeoff is important when incorporating a necessary investment such as life insurance into the picture. Learn the basics to make an informed decision, not on getting insurance, but on what insurance is right for you.