Did You Know: 96% of Term Life Insurance expires or is cancelled and never pays out?
Term versus Perm – that is the question…or is it?
There are two main categories of life insurance: Term and Perm (Permanent), lets take a quick look at each.
Term Life Insurance provides coverage for a set period of time such as 10, 20 or 30 years and is usually less expensive. It provides the greatest amount of coverage for the lowest initial cost. It’s a good choice for your temporary needs or if your funds are limited.
Permanent Life insurance, which includes Whole Life, Universal Life, and Variable Life is useful when you want to cover a long-term need such as income for a spouse, “inheritance” for children or end of life expenses. Permanent insurance initially costs more, but can accumulate cash value.
Interestingly, over the course of a lifetime when you account for the accumulation of cash value that permanent insurance produces – permanent insurance can actually cost less. In addition, with a properly funded Variable Universal Life product that allows you to invest in well managed mutual fund accounts – it is possible to stop paying premiums all together, say at age 65.
A Variable Life Insurance policy can not only stay in force without paying any premiums after a certain amount time – but can actually continue to grow and build cash value. There is also an opportunity to establish a potentially 100% tax free retirement income stream. This product does pose some investment risk, but also potentially much higher upside, especially over longer periods of time.
So, which policy is right for you and/or your family?
Life insurance needs change as life stages change. If you are a young adult (say in your 20’s) with no spouse, children and minimal debt – you likely believe you don’t need any life insurance at all. Chances are, however, there are people who depend on you, and who’d be impacted financially if you were no longer around (either by support provided to them or by end-of-life expenses).
That’s why it’s a good idea to still have Life insurance as a single younger person. Buying life insurance when you’re young and healthy is typically cheaper, and ensures you’re covered even if your situation changes.
Even though rates for term policies are typically lower than those for permanent ones (if applying for the same coverage), there are tradeoffs. For one, premiums on term policies typically go up substantially at the end of the initial term – usually 10, 20 or 30 years. And, if you stop paying premiums for any reason, you are no longer eligible to receive death proceeds and your family’s financial future may be jeopardized.
Term life insurance policies are good for financial obligations that end, like a home mortgage or education costs. However, be sure to verify the term policy is convertible (to a permanent policy) and what restrictions and conditions exists in doing so. This feature opens the door to more flexibility and options down the road.
On the other hand, permanent life insurance policies are good for retirement planning, income replacement, and ongoing financial obligations like caring for a family member with a disability. Permanent policies can accrue cash value and stay in force as long as you pay the premium. They may require a medical exam but usually have fixed premiums that won’t go up even if your health takes a turn for the worse.
Critical Question – Do you want a life insurance policy while you are living, or do you also want to assure one is there for your family when you are gone?
Sound complicated and like a lot of work? IT IS!! Which is exactly why it is so important to have someone on your side.
In this post-recession economy the role of the Life insurance agent has taken on a renewed significance. As an experience Life Insurance Agent I can serve as a facilitator and educator, and can explain the specifics better than any web search or call center. I also have several tools at my disposal to help keep things simple and relevant. Give me a call today and lets get started.