St. Louis Post-Dispatch Jim Gallagher column [St. Louis Post-Dispatch]

Jan. 29--Let's answer a couple of reader questions on the housing market and life insurance.

My husband and I are in our late 50s. We've been in our present home for over 30 years. We have an outstanding mortgage of $30,000. We are considering moving to a new house, which would raise our mortgage to $80,000. We hope to pay it off by the time we retire in six years. With the opportunities available to buyers at this time, can we look at this as a financial investmentS.C., St. Louis

We'll answer your question first, then take a look how home values are doing in St. Louis.

These days, you should look at a home as an investment in happiness, not something that will raise your net worth. Home prices have been falling for five years. Sales have been improving for the past few months, which may indicate that a price bottom is near, but no one is sure of that. Nor is there any reason to believe that home prices in the future will perform better than other investments.

That said, there's nothing wrong with buying some happiness. That's what money is for.

Retirement usually brings a cut in income. So, it's a really good idea to own a house free and clear before you take the retirement leap. If you can pay down the loan by retirement, and still have enough to retire on, then go enjoy the new house.

Now, let's take a look at our Jekyll and Hyde real estate market. In brief, St. Louis sales are going up, but home prices are still going down.

In St. Louis city and county, 1,068 homes sold last month, up from 1,005 in December 2010, according to the St. Louis Association of Realtors. That was the seventh monthly rise in sales compared year over year.

Prices remain weak, however. In St. Louis city and county, the median sale price was $110,250 last month compare to $128,900 a year earlier, according to the realtors.

Distress sales have been weighing down prices here and across the nation. Shawn Kelsey, of Keller Williams Realty in Chesterfield, sees hope in the fact that foreclosures are getting fewer here. There were 2,125 foreclosures in St. Louis County last year, compared to 3,240 in 2010 and 3,941 in 2009, he said. It's uncertain how much of the decline reflects fewer homeowners in trouble versus bottlenecks and legal problems slowing foreclosures.

The supply of homes for sale is also coming down. St. Louis city and county started the year with a 9 to 10 month supply of homes, indicating a buyer's market. Now it's slightly over 7 months, said Glenn Vatterott, president of the St. Louis Association of Realtors. A six-month supply is considered balanced. "The market seems to be showing signs of stabilizing," he said.

A friend referred me to a local financial adviser that he thinks has some great ideas. His great idea is a "whole life" insurance policy for about a thousand dollars a month. I feel that this is a waste of money. I am a 27-year-old who is married and has a nine-month-old. I feel a term life policy is the best bet. But am I missing out a big investment gain by going with term? C.K., Wentzville

No. Term life is probably the right choice for you. It is for most people.

Term is cheap and simple: You send the insurer an annual check and they give you a certain amount of coverage for a certain number of years. A healthy guy your age can get $200,000 in coverage for as little as $200 the first year on a 30-year policy.

It's quite a competitive market, which partly explains the cheapness, and you can shop easily online. Try more than one quote service, such as selectquote.com or reliaquote.com.

The alternative, a "cash-value" policy, demands much bigger check each year for equal coverage. Cash value policies include whole life and its cousins, universal and variable universal life.

The kicker is that they include a savings component. Part of your payment is invested, and it grows on a tax-deferred basis until you cash it in. You can usually borrow from the policy without paying taxes.

The tax deferral can make a big difference to an investor over a long period. But there are other ways to get it; a 401(k) or an IRA. A "529" college savings plan grows tax free. For Missouri residents, the 529 provides an added bonus; your contributions are generally deductible from state income taxes. You can open an IRA or 529 account yourself without paying a commission to a broker.

Cash value policies also come with heavy fees, commissions and sometimes surrender charges. They eat away at the policy's value, particularly in the first year.

There are exceptions, but most people should max out contributions to IRAs, 401(k)s and 529 plans before considering cash-value life insurance for savings.

This is complex stuff, and I've had to leave out many details. I expect to hear from insurance agents telling me I'm an idiot. They'll point out that term has its downsides too, which it does.

You normally buy it for a certain length of years. If you're sick at the end of the term, you may have trouble finding a policy to replace it. So look for one that guarantees coverage for as long as you'll need it. Many policies are convertible into whole life plans, so find one that's still convertible near the end of the term.

You can buy a "level term" policy, in which the payment stays the same for a certain number of years. With other term plans, expect to pay more every year as you age, and that can get expensive in the tail years.

If you stay healthy, you can always shop around for cheaper coverage when the premiums get high. By that time, you may need less coverage.

Life insurance is intended to protect your family. Once the kids are out of college, the house is paid off and you have money socked away, you may not need life insurance at all.

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