Permanent Life Insurance vs Term

Compare Term Insurance vs Permanent Insurance

 

What is the Difference Between Term Life and Permanent Life Insurance?

 

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Which Type of Policy Meets Your Needs?

There’s no one right answer for everyone.

Each of us has our own specific life insurance needs. Term Life and Permanent Life each have advantages and disadvantages. 

Term life insurance is designed to help people buy protection they need when they can't afford to purchase all permanent insurance, or when they only need life insurance for a specific period of time. 

Term insurance provides you with a guaranteed death benefit.

The life insurance premiums may increase at pre-determined intervals such as 1 year, 5 years, or 10 years. It depends on the type of term policy you select.

A term life policy is often the choice when your needs are higher for a period of time, then drop down to lower levels in later years, such as when your children are grown up, or your mortgage is paid off.

Term insurance can also be an effective way to provide supplemental coverage in addition to permanent insurance during years you need higher levels of protection, such as when your family and other financial responsibilities are beyond your current income level.

In these situations, term coverage allows you to purchase important death benefit protection without going over your budget. 

The Real Cost of Term Life Insurance

However, term insurance has its disadvantages. It isn’t right under all circumstances. Among its drawbacks, be sure to note the following:

You do have to "die to be paid." As unpleasant as that sounds, it's true. Term life insurance provides a death benefit only, for a specific period of time. 

If you outlive your policy term, there is no payout to your beneficiaries. 

When the term coverage expires, your protection ends. Also, if you stop paying your life insurance premiums during your policy term, the coverage ends.

Here’s an example for you - Let's say you own a $150,000 term life insurance policy. 

You've kept the coverage in force for ten years, and the policy expires at midnight on June 30. If you die at 11:59 p.m. on June 30, your beneficiary receives the full $150,000 in death benefit proceeds. However, if you die at 12:01 a.m. on July 1, your beneficiary receives nothing under the term insurance policy, since the policy has expired.

There is the Very Real Risk of becoming uninsurable when your term policy expires. 

While many term life plans are convertible to permanent insurance coverage, others may not be. 

And, even if the term policy is convertible, there are time limits. If the policy is allowed to expire, you may be required to re-apply for life insurance coverage, and prove insurability by taking a health exam. If you are found to be uninsurable at that time, you will be without life insurance protection.

Since premiums increase at each renewal, the long-term cost of term can be very costly. 

Many people buy term insurance coverage when they are in their 20's or 30's because it appears more affordable when compared to a cash value or permanent life insurance policy with the same death benefit amount. 

By the time they are in their 40s or 50s, the coverage seems a little more expensive, as the rate goes up. 

In their 50s, the cost may be comparable to the cost of permanent coverage. 

Finally, in their 60s, if not sooner, they may decide to drop the policy — not because they no longer need the protection, but because they usually can't afford it. 

However, the person who paid more for a permanent life insurance policy in their 20s may still be paying the same premium. That's why the term policy's conversion privilege is so important. 

This valuable feature is usually available in the first few years of the policy, and allows you to convert your term life policy into a permanent insurance policy without submitting evidence of insurability. 

Converting to a permanent policy lets you "lock in" a fixed premium, and your life insurance coverage can never be canceled, provided you pay your life insurance premiums on time.

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The Value of Permanent Life Insurance

Cash Value or Permanent Life Insurance is often the best long term solution for many people. 

The Reasons Permanent Insurance May be Right for You:

Permanent life insurance provides you with lifetime insurance protection, provided you pay your premiums. Usually, once you’ve been approved for coverage, your policy cannot be canceled by the insurer. Regardless of your health, the insurance will remain in force.

Despite higher initial premiums, permanent life insurance can be less expensive than term life insurance in the long run. Many permanent life insurance policies are eligible for dividends, which are not guaranteed, if and when they are declared by the insurance company. 

Many insurance carriers offer the option to apply current and accumulated dividend values towards payment of all or part of your life insurance premiums. 

If dividend values are sufficient, out-of-pocket premium payments may be reduced after several years, yet coverage continues for your entire lifetime. 

While premiums must be paid under both, the permanent and term life insurance plans, long-term out-of-pocket cost of permanent insurance may be lower compared to the total cost for a term policy.

Permanent insurance can eliminate the potential problem of future insurability. 

Cash value life insurance policies do not expire after a certain period of time. And, some policies contain guaranteed purchase options, which allow you to buy additional life insurance coverage at specified times, regardless of your health.

Cash Value Life Insurance builds cash value within the policy. This amount, part of which is guaranteed under many policies, can be used in the future for any purpose you wish. 

You may borrow cash value from your policy for a down payment on a home, to help pay for your children's college, or to provide income for your retirement. 

NOTE: Borrowing cash value from your permanent life insurance policy requires the payment of loan interest and will affect your total policy values. 

Also, if you decide to stop paying premiums and surrender or cancel your permanent insurance policy, the guaranteed policy values are yours.

When purchasing life insurance coverage, consider the financial rating of the insurance company, not just the cost. Consider your long-term goals and need for protection.

If you need life insurance to last for 30 years or less, then term life can help. If you need life insurance guaranteed to last for as long as you live, then permanent life may be right for you.

Life Insurance Quotes

 

Top Pick – JRC Insurance Group

JRC Insurance Group helps you shop, compare and save on life insurance. Regardless of your age or health background, we'll shop our 40+ insurance companies and find you affordable life insurance you need to protect your family and fit your budget. Compare the best life insurance rates for savings up to 73%. Get Your FREE Quote.

 

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Permanent Life Insurance vs Term