I was recently introduced to the idea of purchasing an indexed universal life insurance policy. The cost is so much higher than term life insurance, so I don't know if it's a smart way to spend my savings. I know the term insurance expires after a certain number of years, and IUL will not. Should I consider this type of life insurance? I am in my early 50s and my term life insurance will elapse in 15 years. – Susan F.

With an indexed universal life insurance policy, you're buying two things: life insurance, plus an investment vehicle that's tied to the performance of a stock market index, such as the S&P 500. For many planners, that's one thing too many. "Life insurance is meant to protect those who are dependent on your income, in case something happens to you," says Annapolis financial planner Ted Toal. "The most effective way to fill that need is through a term policy, which it seems that you have."

An indexed universal life insurance policy is basically an expensive way to save for retirement, Toal says. Most permanent life insurance policies (of which this is one) wrap your investment in a variety of fees, which cuts your bottom line. And as an insurance product, it's much more expensive than term life insurance, so most people can't afford to get as much as they need.

"Don't look to insurance products for savings, whether it's college or retirement," Toal says. If you really want to save for retirement, look first to your employer-sponsored plan, such as a 401(k) or 403(b). Do you have a traditional IRA or a Roth? If not, Toal says, you should fund those first. And your term life insurance currently stretches to age 65. If at that point, your dependents would be fine if something happens to you — either because they're making a sufficient income themselves, or because you've saved enough to pass on to your heirs — then you have no additional need for insurance.

— Kate Ashford

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