Life Insurance: Term or Perm?
Just like when you played the game of LIFE as a kid and you got to the point where you had to decide to buy life insurance or not, you may now have reached the point in your adult life where you have been thinking about buying life insurance. You know there are two general choices: term or permanent (perm). Which one is right for you? To answer that question let us first consider why individuals purchase life insurance.
On the most basic level, the purchase of life insurance is an investment. A policy may be purchased to invest in a child’s education, to invest in provision for the family in the event of the breadwinner’s death, to invest in a future, goal, or to invest in retirement to name a few. If you are a business owner or partner in a business there are many other strategic reasons to purchase life insurance. Life insurance is a vehicle to save money for the future, yours or that of someone else. Your reason for buying life insurance is a very important indicator as to which type of policy you should purchase. Term or perm?
TERM LIFE INSURANCE
Term life insurance is temporary coverage, for a set period of time. Five, 10, 15, 20, and 30 year periods are customary in the industry. The main attraction of the term policy is the low premiums. Affordable premiums are very attractive to those under the age of 35 and to those who have budget considerations. They are great for saving money while having some coverage in the event of loss. Term policies are good for insuring college educations and covering mortgages. Most term policies are not convertible to permanent policies. This means that when the term expires you must purchase another policy and frequently health examinations are necessary to determine your new rate. Additionally, when the term expires you will be older and can expect a much higher premium. Most term policies do not build cash value. However, a very few will return premiums to the policy owner if the owner survives the period of coverage. Riders are available for things such as payment of premiums for a period of time in the event of disability or unemployment. The major drawback to the term policy is that, according to research, most term policies do not pay a death benefit. In other words, most individuals who purchase a term policy do not die before the policy expires.
PERMANENT LIFE INSURANCE
Permanent life insurance is just that….permanent. It provides coverage usually until the age of 100 or 120 and always pays a death benefit. There are many products available that qualify as permanent life insurance. Some build cash value to draw or borrow from as the policy ages. There are several strategies to build cash value currently available such as fixed and variable interest and market or index-based accumulations. This money accumulates tax-deferred and loans or withdrawals may be tax-free. Permanent policies are more expensive that term initially. However, premiums even out over time. In these market conditions, permanent life insurance is an effective vehicle for saving money because they typically pay a much higher interest rate that the banks currently do.
FIND A PROFESSIONAL
Financial decisions are among the most important that we make in life. Finding a trusted financial professional to provide assistance if imperative. Look for a company with a good reputation that has been in business for a long time. Also look for a company that has the assets to pay out a death benefit in the unfortunate event of loss.