Permanent vs Term Life Insurance

When it comes to life insurance, there are two main types to consider: permanent and term. Each has its own set of advantages and disadvantages, and the type that is best for you will depend on your individual needs and circumstances. In this article, we will explore the differences between permanent and term life insurance, and help you make an informed decision about which type of policy is right for you.

What Is Permanent Life Insurance?

Permanent life insurance provides lifelong coverage, meaning that as long as you pay your premiums, your beneficiaries will receive a death benefit when you pass away. There are three main types of permanent life insurance: whole life, universal life, and variable universal life.

Whole Life Insurance

Whole life insurance is the most common type of permanent life insurance. It provides lifelong coverage and has a fixed premium, which means that the amount you pay will never change. It also has a cash value component, which means that a portion of your premium goes towards building a cash value that you can borrow against or withdraw from later in life. The cash value also earns interest over time.

Whole life insurance is a good option for those who want lifelong coverage and are comfortable with a higher premium in exchange for a cash value component.

Universal Life Insurance

Universal life insurance is another type of permanent life insurance. It also provides lifelong coverage, but it has a flexible premium and death benefit. This means that you can adjust your premium and death benefit over time to meet your changing needs.

Universal life insurance also has a cash value component, which earns interest over time. However, the cash value is linked to a market index, such as the S&P 500, which means that it can potentially earn more interest than a whole life policy. However, it can also earn less if the market index performs poorly.

Universal life insurance is a good option for those who want lifelong coverage but also want the flexibility to adjust their premium and death benefit over time.

Variable Universal Life Insurance

Variable universal life insurance is a type of permanent life insurance that combines the features of universal life insurance with investment options. This means that you can choose how your premiums are invested, such as in stocks, bonds, or mutual funds.

Variable universal life insurance also has a cash value component, which can grow over time based on the performance of your investments. However, it also comes with more risk than whole life or universal life insurance, as the value of your investments can fluctuate.

Variable universal life insurance is a good option for those who want lifelong coverage and are comfortable with taking on more risk in exchange for potential higher returns.

What Is Term Life Insurance?

Term life insurance provides coverage for a specific period of time, such as 10, 20, or 30 years. If you pass away during the term of the policy, your beneficiaries will receive a death benefit. If you outlive the term, however, the policy will simply expire and you will not receive a payout.

Term life insurance is typically less expensive than permanent life insurance, which makes it a good option for those who want to purchase a large amount of coverage for a specific period of time, such as to pay off a mortgage or provide for children until they reach adulthood.

Level Term Life Insurance

Level term life insurance is the most common type of term life insurance. It provides coverage for a fixed period of time and has a fixed premium, which means that the amount you pay will never change.

Level term life insurance is a good option for those who want a set amount of coverage for a specific period of time, such as to pay off a mortgage or provide for children until they reach adulthood.

Decreasing Term Life Insurance

Decreasing term life insurance is a type of term life insurance where the death benefit decreases over time. This type of policy is often used to cover a specific debt, such as a mortgage, where the amount owed decreases over time.

Decreasing term life insurance is a good option for those who want coverage for a specific debt that decreases over time.

Which Type of Life Insurance Is Right for You?

Choosing the right type of life insurance can be a difficult decision. It is important to consider your individual needs and circumstances when deciding which type of policy is right for you.

If you want lifelong coverage and are comfortable with a higher premium, a permanent life insurance policy may be the best option for you. If you only need coverage for a specific period of time, such as to pay off a mortgage or provide for children until they reach adulthood, a term life insurance policy may be the best option for you.

Ultimately, it is important to speak with a licensed insurance professional to help you determine the best type of life insurance policy for your individual needs.

FAQ