Deciding what type of life insurance to purchase can be challenging to those who want to make sure they buy the very best coverage for their family. The two main types of coverage to purchase are term and permanent. Which is the best choice for you? Since making the right choice depends on your circumstances, let’s take a closer look at how you might decide.
The Difference between Term and Permanent Insurance
First let’s take a look the two types of coverage. Term life insurance is a predetermined sum of money people pay to cover their death if occurs during the specified period of time. For instance, if you buy a 10-year term policy, the payments you make cover you as long as you died within the next 10 years.
While you may be able to purchase additional life insurance riders like Accidental Death or the Disability Waiver of Premium, the term policy in and of itself typically doesn’t come with additional benefits. At the end of a term policy, it is necessary to purchase another one to be covered.
Permanent life insurance is coverage meant to financially protect loved ones upon your death, no matter when you die. This means, if you purchase the coverage at the age of 30 and die at 85, as long as you keep up with payments, you will never have to purchase a new policy.
One element of permanent life coverage that makes it unique to the term policy is its savings component. Because you are likely to spend 30 or more years paying into permanent life insurance, making it more of an investment, the policy is treated as such.
Permanent premium payments go toward death benefits, investments (money market securities, bonds, mutual funds or even applied to a fixed interest rate) and cash payouts that can be used as money left over for your family upon your death, or even extra cash you take prior to your death.
There are three standard types of permanent coverage:
- Traditional Whole Life: Guarantees annual premiums, cash values and death benefits.
- Variable Life: Few premium and benefit guarantees but more potential for cash-value increases because investments are riskier.
- Universal Life: A flexible coverage option that allows premiums to vary from year to year.
It’s good to note that because permanent coverage offers so many more features than term coverage, it typically comes with a higher premium.
Deciding the Type of Coverage to Choose
To help you decide which type of coverage might work best for you, let’s look at life circumstances and desires that might sway your decision in one direction over the other.
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Keep in mind that the above circumstances should not solely be used to decide whether term vs. permanent life insurance is best. Instead, it is meant to give you an idea of the type of coverage that might better suit your personal circumstance.
Keep in mind that the above circumstances should not solely be used to decide whether term vs. permanent life insurance is best. Instead, it is meant to give you an idea of the type of coverage that might better suit your personal circumstance.In order to make the best choice, it’s important to shop around for coverage with different life insurance companies and learn about their policy options (which could to surpass the options mentioned above).
Also, you want to look specifically at the company to decide whether it is reputable before signing on any dotted lines. The more research you conduct on coverage options and insurance companies, the better your chances will be of finding the perfect policy for you.
Stacey Bumpus started writing as a youngster, creating little fun newsletters to distribute to her elementary school friends. But it wasn’t until she completed her bachelors and masters degrees in communication that she realized her fun pastime could become a career.After spending years in corporate communications, she discovered that freelancing was her cup of tea and fell in love with finding the latest financial news. Now, providing news and tips about taxes, mortgages, banking and even logging her efforts to save toward retirement, she’s not only fulfilling her childhood passion, but also helping others manage their finances responsibly.
