Should You Choose Term or Permanent Life Insurance?
Filed under: Insurance
Risk is a natural part of life, especially when it comes to your financial strategy. You face a wide range of risks every day, from the possibility of a decline in investment values to a career interruption to even a costly injury or illness. You can’t eliminate risk completely, but you can take steps to manage your risk exposure.
Death is the ultimate risk. While it may not be probable depending on your age or health, it certainly would have a major impact on your family, friends and finances. That’s especially true if you’re the primary financial provider for your spouse, children or other dependents. If you unexpectedly pass away, they could face significant financial challenges. If you own a business, your employees and business partners could suffer in the wake of your death.
Fortunately, you can use life insurance to minimize your family’s exposure to risk. Life insurance provides a tax-free lump-sum benefit to your designated beneficiaries. They can then use those funds to overcome financial challenges like debt or a loss of income.
A wide range of life insurance policies are available, but most fall into one of two categories: term or permanent. Both offer different types of coverage for different objectives. If you’ve never purchased life insurance before, you may be overwhelmed by your choices. Below is helpful information on both types so you can purchase the policy that best aligns with your goals:
Term insurance provides temporary life insurance protection for a limited period of time. The available durations usually range from 10 years up to 30 years. You choose the term when you purchase the policy. Generally, the longer the term, the higher your premium will be.
Your premium remains level during the policy’s term. As long as you pay the premiums, your death benefit remains in effect. When the term is expired, you can let the policy lapse and stop paying premiums. You also may have the option to continue the policy, though the premiums may be recalculated to reflect your older age. Some insurers also offer the opportunity to convert the term policy to a permanent policy. Again, though, you will likely pay higher premiums to reflect your age and the fact that the policy is now permanent.
Keep in mind that your term policy won’t accumulate cash value. While term policies are generally more affordable than comparable permanent policies, you don’t get your premiums back after the term ends.
You may want to consider a term policy if you’re on a tight budget and have a limited insurance need. For example, you may only want coverage while you have minor children in the home. Or perhaps you’re required to carry an individual policy as a condition of a new mortgage. Term insurance can be a cost-effective tool to meet these needs.
As the name suggests, permanent insurance is life insurance that lasts for the remainder of your life, assuming you pay the required premiums to support the policy. Some policies do have an end date on which they simply pay out the cash value regardless of whether you have passed away or not. Those end dates are usually at age 100 or later, however, so few people actually reach them.
Another big distinction between term and permanent is that a portion of your premiums toward a permanent policy goes to a cash value account. The money in that account grows on a tax-deferred basis, and you can even use it in the future as supplemental income or to buy additional coverage. The type of growth depends on your type of policy. Some policies pay interest or dividends, but others, such as variable universal life policies, allow you to invest your cash value in the market.
Permanent insurance is a great option when you have an indefinite coverage need. For instance, perhaps you want to leave money for your spouse or children, no matter your age when you pass away. Or maybe you own a business that will need liquidity after your passing.
Ready to develop your life insurance strategy? Let’s talk about it. Contact us today at Ambrose Financial & Insurance Services. We can help you analyze your needs and choose the coverage that’s right for you. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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