No one is ever truly prepared to lose a loved one. The experience is emotionally exhausting… but it doesn’t have to be financially exhausting too. One smart way to put your family’s financial worries at ease is to purchase a life insurance policy.
Life insurance comes in many shapes and sizes, but the different types of life insurance policies generally fall into one of two categories: Term and Permanent.
Term Life Insurance
Term life insurance is typically the most affordable type of life insurance available. It is designed to meet temporary needs, providing coverage for a pre-defined period of time (the term). For example, you can purchase a term of 10, 20, or 30 years. The premiums are typically fixed and remain unchanged for the duration of the term. Term life insurance has no cash value. At the end of the policy term, you have the option to continue the policy, but the premium will increase significantly. And most term policies include an option to convert to a permanent policy without showing proof of good health.
| Advantages | Disadvantages |
|---|---|
| Lower costs in early years | Higher costs in later years |
| Coverage customized to last for a specific number of years | No cash value |
| Option to convert to permanent coverage later without proof of good health | Premium paid every year for coverage to remain in force |
Permanent Life Insurance
Permanent life insurance is designed to provide lifelong protection, as long as the premiums are paid. Most policies will provide coverage until age 100 or later. The policy will build cash value that is tax deferred and will continually increase over time. During your lifetime you can borrow against the cash value for things like business or investment opportunities, education expenses, retirement income, and emergency medical expenses.
| Advantages | Disadvantages |
|---|---|
| Lower costs in later years | Higher costs in early years |
| Fixed premium | Future dividends and current interest rates are not guaranteed |
| Coverage is permanent for life | |
| Guaranteed policy cash value | |
| Tax deferred growth on cash value | |
| Cash value accessible through surrender or policy loan | |
| Coverage may be continued without further premium being paid |
You should consider the advantages and disadvantages of each to determine the best fit for your individual needs. For some people a combination of term and permanent coverage may be appropriate. For example, you can use permanent coverage as a foundation for final expenses and use term coverage for larger, more immediate needs.
Please contact me with any questions or for more information.
Insurance Blog - By Jennifer Wells, CISR 