AKAMAI MONEY

By Deborah Adamson
Advertiser Staff Writer

Q. What is the best type of life insurance? I've done some research on it, but I got different answers. Some people say don't go with term, some say go with term. There's also universal life insurance. How do I know what's best for me to protect my family? — Kehau Pong, 'Ewa Beach.

A. The best life insurance is different for everybody. It depends on your circumstances — how much coverage you need and for how long, what features you want and how much control you want to have over investments. But first, you should determine whether or not you need it at all.

In general, people with dependents should consider taking out life insurance, said Lesley Brey, a certified financial planner in Niu Valley. If your death would put someone in financial jeopardy you should buy it.

If you and your spouse work but the death of one won't hurt the family's lifestyle, consider coverage only for the higher-earning spouse. It doesn't make sense for people without dependents — your children when they're young or as a single, working adults — to buy life insurance, said Bob Hunter, director of insurance at the Consumer Federation of America in Washington, D.C.

"There is no need for life insurance for a child. You're supposed to insure against economic consequences," he said. "A child costs you money."

How much coverage do you need? It depends on what you want to protect, said Clay Agena, an insurance broker and chartered life underwriter in downtown Honolulu. To estimate, you could add up your debt, educational needs of dependents, funeral costs and replacement of income.

When shopping around for life insurance, consider USAA Life Insurance Co., which only uses employees who are salaried, not commissioned, Hunter said. That means they won't have as much incentive to push products with the highest commissions but may not be suitable for you. You can reach the insurer at www.usaa.com or (877) 243-2672. While USAA's property and casualty lines are only for military families, life insurance is open to the public.

Also consider low-load carriers such as TIAA-CREF (800) 223-1200) or Ameritas (800) 745-6665), the consumer group said. TIAA-CREF uses salaried staff while Ameritas has both — so ask to be referred to an agent who doesn't earn commissions.

Check with your employer or professional organization to access group life insurance plans, which tend to be cheaper, Brey said.

Make sure the insurer is financially sound so they can pay out your benefits in the long run. Five agencies rate them: A.M. Best (www.ambest.com), Fitch Ratings (www.fitchratings.com), Moody's (www.moodys.com), Standard & Poor's (www.standardandpoors.com) and Weiss Ratings (www.weissratings.com).

The first four offer a free ratings check online. While they maintain their independence, they make money by charging insurers. Weiss Ratings doesn't, but reports are $14.99 each. Consumer Reports says the "secure" ratings for A.M. Best are "A++ to B+," Fitch is "AAA to BBB-," Moody's is "Aaa to Baa3," S&P is "AAA to BBB-" and Weiss is "A+ to C-." Weiss offers a free list of strongest and weakest insurers at www.weissratings.com/HL_Life.asp.

If your insurer goes out of business, and if it's licensed to do business in the state, the Hawaii Life & Disability Insurance Guaranty Association protects each policyholder up to $300,000 in death benefits and $100,000 to cash out before death. For more information, go to www.hilifega.org.

There are two basic types of life insurance — term, which ends after a certain number of years, and permanent, which lasts your whole life. Within permanent are whole life, universal and variable life insurance.

Choose term if you only need coverage for a set amount of time since your situation will change and you want the cheapest option. Choose permanent if you have a lifelong dependent such as a disabled child or for estate planning purposes, Brey said.

If you have young children, you ought to consider taking out term life that lasts until they become working adults, she said. Make sure your policy can be converted into permanent, just in case your child becomes disabled and would be your dependent for life. However, it can be costly to convert.

You can choose term insurance with a fixed premium over a set number of years, say 5 or 10, or one with an increasing premium. Why choose the latter? It starts out cheaper and gives you more flexibility — in case you won't need coverage after a certain number of years and you drop it.

Term insurance has a simpler structure than permanent, so you can more easily compare products from different insurers, Hunter said. You could choose to buy it online as well, but many Web sites don't list the cheapest insurers since they don't make as much in commission. One exception is www.term4sale.com, the consumer group said.

Permanent life insurance is much more complex so you might wish to seek help from an insurance broker, Brey said. Make sure the broker or agent is licensed by calling the state at 586-2790 or going to www.hawaii.gov/dcca/ins/consumer.html.

If the state took action against an agent or broker, they will be listed on the Web site of the National Association of Insurance Commissioners at www.naic.org. Click on "National Insurance Producer Registry" and "producer." Also, look for someone with a Chartered Life Underwriter (CLU) designation.

What makes permanent more complicated than term is its cash value component — essentially, a savings and investing account. Thus, you're buying an insurance product that acts as a savings vehicle as well. For instance, if your premiums are $500 a year, $100 could go towards insurance and the $400 towards your savings. These savings are either invested by the insurer or you could direct where they're invested.

But premiums for permanent life insurance can be at least triple the price for term, planners said. While policies do last a lifetime, more than half of consumers who own them don't hold them until their deaths, Hunter said.

Costs can be steep as well. You face significant charges if you wish to take out your money within the "surrender period," which could last anywhere from 10 to 15 years. For the first year, total costs could be as high as all of the premiums you've paid, Hunter said. However, you can borrow against your policy at a low interest rate.

Among the different types of permanent life insurance, whole life is the most expensive because it has a set premium and guaranteed death benefit. Universal life is more flexible, because you can adjust the premium and death benefit to suit your needs. Finally, there are many variations of the three basic types of permanent life insurance.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.