In selecting a policy, you’re bound to choose between term and permanent life insurance. What do these options really mean? What will they mean for your family? And why should you choose one over the other? Here are the key differences.
While most families do just fine with the generally less expensive term life insurance, there are some instances where permanent life insurance is a must—for the sake of your family and your own peace of mind.
Term life insurance is just that: a life insurance policy that covers you for an agreed length of time, typically ranging from 10 to 20 years. Unlike permanent life insurance, once your term is up, there is no investment payout or guarantee that your future rates will be comparable. Since term life insurance is typically five to seven times less expensive that permanent life insurance, many insurance agents will tell you to “buy term and invest the rest.”
If you are in your mid-thirties, don’t smoke and pay roughly $30 per month on a term life insurance policy, you can expect a permanent life insurance policy to be roughly five to seven times as much, ranging from $160 to $215.
Now if you’re saying “Gee, permanent life insurance sounds like a rip-off,” you may want to hold off before closing your web browser. Permanent life insurance can offer more protection and value in several instances. Here's why:
If you are looking to leave a fixed amount, say $600,000, to a disabled child or spouse no matter how old they may be when you pass, a permanent life insurance policy may be a better investment.
If you have a known genetic disorder that is likely to be passed on, your child may have a difficult time securing affordable life insurance coverage later on in life. While it may seem morbid to take out a permanent life insurance policy on your child, it could be the only affordable way to ensure they are covered through their senior years at the lowest possible rates.
If you are heavily invested in bonds or other taxable investments and have more money than you’ll need in your lifetime, a permanent life insurance policy with an investment component can help shield you from high tax rates. Ultimately, you are trying to look out for your family’s future, not the tax collector’s.
Life insurance companies are essentially gamblers. While it’s nice to know they are rooting for you to live as long as possible, it’s always best to find an agent you trust, who understands your needs when evaluating all the options and making your decision.
