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Term Life Insurance Vs. Permanent Life Insurance

by | Apr 15, 2014 | Blog

Unlike term insurance, which addresses more temporary needs, permanent life insurance is designed to provide life-long financial protection. Because permanent life insurance policies are designed and priced to keep over a long period of time, this may be the right type of insurance for you if you have a long-term need for life insurance coverage. “Permanent insurance” is generally a catchall phrase for a wide variety of life insurance products many of which include a cash-value feature. Within this class of life insurance, there are many different products, including universal life insurance and indexed universal life insurance.

Despite what many people may think, the need for life insurance often remains long after the kids have graduated college or the mortgage has been paid off. If you died, your spouse would still be faced with daily living expenses. And if your spouse outlives you by ten, 20 or even 30 years—would your spouse be able to maintain the lifestyle you worked so hard to achieve, without the death benefit of life insurance? Would you be able to pass an inheritance on to your children or grandchildren? These are questions to consider carefully when determining what type of life insurance fits your needs.

Term insurance is often a good choice for your family in earlier years, especially if the budget is tight, because it allows for affordable, yet high levels of coverage, when the need for protection is often greatest. Term insurance is also a good option for covering needs that aren’t permanent. For instance, paying for college is a major financial concern for many families, but if you don’t need life insurance coverage after the kids graduate, then it might make sense to buy a term policy that’ll get you through the college years.

Term insurance can provide low-cost coverage for a specific period of time (the “term”)—most likely during an individual’s peak earning years when death can cause the greatest financial hardship. Generally the most affordable type of insurance when initially purchased, term insurance is designed to meet temporary needs. It provides protection for a specific period of time (the “term”) and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.

If you buy a term policy and then later realize that you still have a need for life insurance, you can either renew your term policy or (depending on the insurance policy’s rules about conversion) convert it to a different type of policy. If, in ten, 15 or 20 years you’re still healthy according to the company’s standards, you might re-qualify at a reasonable rate. But if your health has deteriorated, you may find that it’s too expensive to renew your policy or you may not even re-qualify.

So, when considering a term policy, be sure you carefully consider your needs and how they may evolve, financially, down the road. If your needs will remain temporary, then term insurance may be right for you. But, if you think there’s a possibility that you might need the coverage for a long time, then remember that renewing your term policy after it expires or buying a new term policy at that time, may make coverage more expensive due to your age, health status or other factors.