Should You Choose Term or Permanent Life Insurance?
Filed under: Retirement, Insurance
The foundation of any reliable retirement income plan is having protection in place for your spouse, children and other loved ones. Your ability to generate income and support your family may be your most valuable asset. If you haven’t taken steps to protect that asset, you could be exposing your family to risk.
One of the best ways to protect your family is through life insurance. Should you pass away, your loved ones can use the death benefit to pay off outstanding debts, replace your income and fund other goals. Without life insurance, your family could fall into financial hardship.
For many people, the question isn’t whether they should get life insurance, but rather what type is best for them. There are several different types of life insurance available. Most fall into one of two categories: term and permanent. Each type meets a specific need and has its own set of benefits and considerations.
Before you purchase life insurance, consider your goals, needs and budget. Then, analyze all your options to determine which type is best for you.
Like the name suggests, term insurance provides coverage for a specific period of time, such as 10, 20 or 30 years. You pay a set premium over that period for a predetermined level of coverage. When the period ends, you have the choice of either renewing the policy at a new premium level or letting the policy lapse.
Term insurance can be an effective option when you have a temporary need for coverage. For instance, you may want a term policy while you have children in the home. After your children grow up and move out of the house, you will likely have fewer dependents to support and thus have a reduced need for life insurance.
You could also use term insurance to cover a debt while it’s in repayment. For example, if you purchase a home with a 30-year mortgage, you may want a 30-year term policy to cover the balance of the mortgage should you pass away.
Term insurance is also popular because of its relative affordability. Term insurance is often less expensive than permanent insurance. If you’re on a tight budget, term insurance could be the right strategy for you.
Permanent insurance is a form of life insurance that stays in effect for the rest of your life as long as you pay the required premiums. There are different types of permanent life insurance, including whole life and universal life.
With permanent insurance, it’s a near certainty that the life insurance company will pay out a death benefit at some point. The only way the policy will lapse is if you stop making the payments. As long as you make the payments, you will pass away while the policy is in force.
Premiums for permanent policies are generally higher than they are for comparable term policies. However, a portion of your premium will usually go into the cash value of the contract. This is an account in the policy that can grow and can be used in the future to pay down premiums or buy additional insurance. You can even take loans from your permanent life insurance in some cases.
Permanent insurance may be a good idea when you have a life insurance need that will never expire. For example, you may know that you want to leave some amount to your loved ones no matter when you die.
Some people also buy permanent insurance when they’re young and healthy so they can lock in a more affordable premium payment. That way, they’re covered should they become unhealthy in the future.
For more information, talk to your life insurance agent or other financial professional. They can help you decide how much insurance you need and what type of policy may be right for you.
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.
15513 – 2016/3/29