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Life Insurance Options: Term Life & Permanent Life

What kind of Life insurance do I need?

Understanding how much insurance you need, and what kind of insurance, can be tricky. Everyone's circumstances are different, which is why it's so important to talk with an independent insurance agent to be sure you have the proper coverage in place based on your individual needs. There are many kinds of life insurance, but they generally fall into two categories:

Term Life Insurance   |   Permanent Life Insurance

 


 

TERM LIFE INSURANCE

Term life insurance can be a great and affordable solution when you only need coverage for a very specific period of time, such as needing coverage until your children graduate from college or until your mortgage is paid off. Initially, term life can be more affordable than permanent life but can be more costly if the need should arise to renew or extend the term. Term life insurance generally pays a benefit only if you die during that term. Below are some things to consider before purchasing term life insurance.

ADVANTAGES

  • Generally the most inexpensive policies among the many types of policies on the market
  • Stay at a premium throughout the guaranteed period
  • "Sleep at night" protection for typically younger clients with a need for larger death benefits
  • Getting it at a young age ensures a long period with a low monthly payment for the policy
  • Simplicity and low cost of these policies make them one of the best deals among insurance products
  • Best solution for needs that will disappear with time
  • High amount of insurance for a lower cost
  • Policy owners can convert to a permanent policy for a time specified by the insurer but usually the duration of the premium guarantee (i.e. 20 years)
  • Death proceeds are not subject to federal income and state inheritance taxes

THINGS TO CONSIDER

  • It can be difficult or impossible to get if you are in poor health
  • Once the guarantee period ends, it may be difficult to purchase a new policy if there have been health problems during the original contract period
  • If an individual becomes uninsurable during the contract period they could be left with no insurance at all – unless there are conversion rights
  • It does not provide any living benefits – except for a terminal illness rider
  • It only pays proceeds if the insured dies
  • It does not have a savings feature, such as cash value element
  • It is not a good product for estate planning
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PERMANENT LIFE INSURANCE

Permanent life insurance provides consistent, lifelong protection. As long as you pay the premiums and no loans, withdrawals, or surrenders are taken, the full amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep it over a long period of time. 

ADVANTAGES

  • Provides both a death benefit and/or cash savings
  • Guaranteed to pay out at some point – it does not expire
  • Consistent
  • Guaranteed for lifetime of a policy or to a specific age
  • Ability, in some cases, to take a non-taxable loan from the policy
  • Earns interest
  • Built-in savings element
  • Dividends available from mutual insurers
  • Certain death benefits
  • Flexible options with universal life
  • Forced savings
  • Initially premiums are much higher than term but are smaller than premiums you would eventually pay if you were to keep renewing a term insurance policy
  • If you surrender the policy at a later date, the cash value, if any, will be returned
  • Cash value grows tax free as long as policy remains in force
  • Can be used for estate planning, supplemental retirement, long-term care protection

THINGS TO CONSIDER

  • It’s more expensive
  • Permanent/whole life is inflexible
  • Unfavorable early termination
  • More complex than term life insurance
  • Could be costly if coverage lapses early

WHOLE LIFE

“Whole

Whole life is the most common type of permanent life insurance. It can provide you with a guaranteed death benefit and rate of return on your cash values. Whole life offers predictability and your premium will never increase. It also offers flexibility, allowing you to choose how often you'd like to make premium payments. You have the opportunity to earn dividends for an enhanced death benefit and cash value growth. These dividends can more than offset the eroding effects of inflation on your coverage amount.

VARIABLE LIFE

“Variable

Variable life insurance is a good option if you’re comfortable with assuming investment risk for the potential for greater returns. Variable life provides death benefits and cash values that vary based on the performance of your portfolio. It’s offered via a prospectus and you can allocate your premiums among a variety of investment options that offer different degrees of risk and reward. You can use the policy for many of your planned financial needs, such as supplemental retirement planning solutions, business planning solutions, long-term care and education funding.

UNIVERSAL LIFE

“Universal

Universal life insurance provides permanent life insurance protection and access to tax-deferred cash values and adjustable premiums. You also can reduce or increase the death benefit more easily than under a traditional whole life policy. Most universal life policies will also provide a guaranteed rate of return on your cash values, unless administrative expenses increase, mortality assumptions are changed, the insurance company’s investment portfolio underperforms, or premium payments are insufficient. One of the most attractive things about universal life policies are that they provide lifelong coverage at rates that can be considerably lower than other forms of permanent insurance.

LONG-TERM CARE

“Long-Term

Long-term care insurance can help offset the cost of medical expenses that you need to maintain your quality of life if you become ill or injured and need assistance for an extended period of time. Paying for care out of pocket isn’t practical or cost-effective for many people. With the right long-term care coverage, you can use the benefits to cover home health care to ease the stress on family members. Some coverage options even allow you to use the benefits to pay a family member to provide care.

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