A Simple Look at the Different Types of Life Insurance

Those shopping for life insurance often battle with this question: Should I buy term life or permanent life insurance?

The answer should be based on the reasons you need life insurance.  I will layout the two different types of insurance that can help answer the question above.

Term Life Insurance

  • Term is for you if your insurance need has a definite end.  That could be retirement, years to pay off the mortgage, or children finished college or trades school.

  • Term options can be 10,15, 20, 25, or 30 years

  • Consider term life insurance if you:

    • Want life insurance to cover a specific financial concern that has an endpoint.

    • Are looking for the cheapest form of life insurance and you don’t need coverage indefinitely

  • The Pros and Cons of Term Life Insurance

    • Pros

      • Lower Cost

      • Guaranteed Issue Options

      • Riders available such as- Return of Premium or Living Benefits

        • Return of Premium: you will receive your premiums back at the end of the term​

        • Living Benefits: If a terminal or critical illness happens to the policyholder, you can access part of the death benefit throughout treatment for living and/or medical expenses.

        • Can convert to a whole life policy (depends on carrier)

    • Cons

      • No cash value​

      • Possibility to outlive your policy 

      • If you outlive your policy and still need coverage, you can purchase another term at a higher rate based on age and health

Permanent Life Insurance

  • Permanent life insurance is that is lifelong coverage

  • Remains in force as long as you pay your premiums

  • Ability to accumulate cash tax-deferred or tax-advantaged

  • Ability to take a loan from yourself as cash is accumulated in your policy

  • Consider permanent life insurance if you:​

    • Want to build cash value within a life insurance policy​

    • Want to cover funeral expenses and retirement or savings will not be sufficient

    • Would like to leave an inheritance or trust for your family.

    • Want a policy that grows with an index, but offers protection from loss in the stock market

  • The Pros and Cons of Permanent Insurance

    • Pros​

      • Cash value that can be taken out and used for what you choose​

      • No penalty if you take the cash value out before 59 1/2

      • Lasts your entire lifetime

      • Can provide income in your retirement years

      • Lock in your premiums rate for life, meaning the carrier can not increase your premium

    • Cons

      • Premiums are higher on permanent life policies​

      • Higher rate of surrender before gaining 

      • If not structured and educated properly can be a waste of money for the policyholder

Types of Permanent Life Insurance Policies

*Credit for this grid to, Maxime Troll

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