Get advice before buying whole life

Q. My wife and I are in our mid-40s, and our financial adviser has recommended a variable whole life insurance policy for retirement savings. Through our work, we already have $550,000 in life insurance. Should we get more?

A. I’d be leery of this recommendation. Generally, I’m not keen on mixing investing with insurance. And if your current policies equal five to 10 times your annual income, you may have enough already.

In biology, we have the plant kingdom and the animal kingdom. Life insurance is like that. There is pure insurance, called “term.” Then there are various forms of “permanent” policies that blend investing with insurance coverage.

Term policies are simple, cheap and easy to shop for. A term policy is pure life insurance, and pays off only if you die during the term specified when you buy the policy. That’s typically 10 or 20 years, though some go for 30.

If you outlive the term, your beneficiaries get nothing. Term policies are like the insurance you get on your home or car.

They are generally very cheap. A healthy man in his 40s who doesn’t smoke might get a 20-year term policy with $500,000 in coverage for less than $1,000 a year.

These policies are ideal for people who need coverage only for a given amount of time — until their children are grown, or until their savings and investments are big enough to protect their families should they die.

Since term policies are so simple, it’s easy to compare one to another. So long as you read the fine print and stick with sound companies likely to stay in business through the policy’s term, your choice can emphasize price.

The universe of permanent life insurance policies includes many varieties. In general, they are all designed to pay the promised benefit no matter how long you live. They allow you to build “cash value,” just as you would putting money into a mutual fund. There’s no annual tax on your gains.

The drawback: Permanent policies can cost five or 10 times as much as term policies with the same coverage. Though many of these products are designed to eventually draw on investment gains to pay premiums, it may take many years to get to this point.

Variable whole life policies give their owners a great deal of control over the investments held by the policies and allow a wide range of investing options. Thus, they can be the most profitable kind of permanent policies, assuming good investment decisions are made. But they usually don’t guarantee a minimum amount of growth, as some more conservative permanent policies do.

Unlike term policies, whole life policies are very complex — making them hard for laypeople to understand and difficult to compare.

Also, they tend to have large sales commissions, which might be why your advisor is pushing the idea. And they may charge heavy annual fees. Finally, you might have a hard time getting your money out early in an emergency.

For all these reasons, I think term policies ought to be the first thing considered if the chief goal is to protect your loved ones. Take the extra money you would have put into a permanent policy and invest it.

But some people really do need permanent policies, such as people with nonworking spouses and wealthier folks worried about paying estate tax.

So I’d get professional advice — but not from someone who will earn a commission selling a policy. Have your whole financial situation evaluated by a fee-only adviser. He or she will charge a flat rate or hourly fee and won’t have a financial incentive to steer you in any particular direction.

For a referral to a fee-only adviser, use the Web site of the National Association of Personal Financial Advisors, the fee-only trade group, at http://www.napfa.org. Or phone 800-366-2732.