Do you know the difference between permanent and term life insurance?
Out of all the questions people have about life insurance, a frequently asked one is whether they should buy permanent or term life insurance. Depending on your personal needs and goals, either one may be right for you.
What is the difference?
Simply put, permanent life insurance is a lot like owning your own home. It’s yours for as long as you want it. You can own it for the rest of your life if you want to. No one can take it from you as long as you keep making your payments.
On the flip side, term life insurance is a lot like renting a home. You’ll have coverage for the number of years that you want. This could be 5, 10, 20, or even 30 years – whatever number of years you select. After the term (number of years) has expired, your coverage ends.
Both policy types have their own unique benefits and features (including a variety of policy riders: add-ons that can enhance your coverage).
Permanent Life Insurance
Permanent life insurance may be a good choice if you’re looking for lifetime protection that will allow you to “lock into” a level premium for life and provide you with a guaranteed rate of cash-value growth. Because it’s permanent, you won’t have to worry about the possibility of having to renew your coverage in the future based on your current age or health status.
Coverage that lasts your entire lifetime
As long as you continue to make your premium payments, your policy will never expire.
Premiums that never increase
The price you initially pay will remain the same – no matter how long you have the policy or how your health changes.
Builds cash-value over time
Much like a savings account, the premiums that you put into your policy grow. That’s cash you can use in the future for a down payment on a home, college expenses, retirement or anything else you want.
The money that accumulates in your policy can be accessed by withdrawing cash or taking money out as a loan. Note: Loans borrowed from your life insurance policy will accrue interest. An outstanding loan balance (loan plus interest) will be deducted from the death benefit at the time of claim. Always check with your insurance agent and financial advisor before you start borrowing from your policy.
Premiums are typically higher compared to a term policy
Because of its cash value features, you’ll pay more initially for permanent life insurance. However, your premiums will never increase.
Term Life Insurance
Term life insurance can be a great way to get the coverage you need at a low price. Whether you’re just starting out in life and money is tight or have a specific, short-term need for coverage, a term life policy can be the answer to getting the insurance you need at an affordable price.
You select the term
How long do you need coverage – 5, 10, 20, or 30 years? The choice is up to you.
You can buy insurance for less money
Term life insurance is typically less expensive than permanent life insurance.
Level premiums that won’t increase
The low price you pay for your term life insurance policy will remain the same until the policy expires.
Some term life insurance policies have renewable options
You may be able to renew your existing policy when you reach the end of the term if your policy has a provision that will allow you to do so. If so, you may be required to take another medical exam and answer a new round of questions about your lifestyle, health status and family health history. Your new policy will then be based on your current age and any other findings.
The policy will eventually expire
When the number of years (the term) you want coverage has passed, your term life insurance policy coverage will end. If you find you need additional coverage, you’ll have to apply for a new policy based on your age and health. Although, there are other options that you can look into with your insurance agent such as converting your policy.
It doesn’t have a savings or cash value element
Unlike permanent life insurance, your term life insurance policy doesn’t grow in value.
You may be able to convert it into a permanent policy
Some term life insurance policies have the option to convert into permanent policies. If you would like this option, make sure to let your insurance agent know.
The Asurea choice
To determine which one would suit your family best, contact Asurea today. We will look closely at your personal needs and goals and advise you on your options.
Asurea offers Life Insurance, Mortgage Protection Life Insurance, Medicare Supplement Insurance, Final Expense Insurance, Disability Insurance, Long-term Care Insurance, Retirement Planning products and more. For additional information, click on the ‘Learn More’ button below. Want to have articles just like this delivered to your inbox? Just enter your email address in the box below and click ‘Subscribe.’
This information is provided for general consumer educational purposes and is not intended to provide legal, tax or investment advice.
*Loans borrowed from your life insurance policy will accrue interest. An outstanding loan balance (loan plus interest) will be deducted from the death benefit at the time of claim. Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. Dollar amounts are for illustrative purposes, not actual.
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