When it comes time to purchase life insurance, you are faced with decisions to make.
There are 2 main types of life insurance to look at. The first is called term life, the second is known as permanent.
Here are the major differences between these 2 types of life insurance.
Term Life Insurance
Term Life insurance is purchased for a predetermined length of time. The term is usually 10 to 30 years. The premium (amount paid per year) remains the same for the length of the term.
- This policy will provide death benefits if death occurs within the term of coverage.
- Term life does not accumulate any cash value.
- This type of life insurance is less expensive compared to permanent life options.
The real benefit of considering this type of policy is the low-cost option to cover against loss for a specific period of time. It is designed to protect your loved ones from upcoming expenses.
As an example - you may want to have a term policy for the length of your mortgage, or for the length of time, your children will be in college. Consider what the loss of you would mean to them and their way of life.
There is a chance you can convert a term policy into a permanent one but this is company and policy specific. Sometimes the low cost of a term policy can get you started with a permanent policy to be converted at a later time. These options are policy specific and should be discussed with your trusted independent insurance agent like Jonathon.
Permanent Life Insurance
Permanent Life Insurance remains in effect as long as the owner lives as long as the premiums are paid.
- The policy accumulates a cash value over time in the form of a savings account.
- This can be accessed while you are alive.
- The cash value is tax-deferred.
- These policies offer death benefits paid to your beneficiary upon your death.
Permanent Life is preferred if you can afford it. Be aware that if the premiums are not paid on time your policy could lapse and result in losing your policy and any cash value it has accumulated. The cash value of whole life policies grows at a guaranteed rate set by the insurer.
Permanent Life can be used as an inheritance. Going directly to your beneficiaries at your death. It can also be used to fund a trust for a loved one that will require lifelong financial support. You will need assistance from your agent, financial advisor, and an attorney to create a trust.
Permanent Life insurance comes in several forms including:
- Whole Life Insurance
- Universal Life Insurance
- Variable Universal Life
- Indexed Universal Life
You can also have a combination of both term and permanent insurance policies. Both allow you to name one or multiple beneficiaries
Term life is sufficient for most families starting out, but whole life and other forms of permanent coverage can be useful as your wealth grows.
A good review of your situation can give you the guidance you need. Evaluate your needs and cover the potential losses for your loved ones should you go.
Questions? Contact us!