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Term Life Insurance vs. Permanent Life Insurance
Buying life insurance may seem complicated with all of the various offers out there, but life insurance policies are divided into two basic types: term life insurance and permanent life insurance.
Term Life Insurance
Anyone can get a term life insurance policy.A good example of a term life insurance policy is that it's similar to leasing a car. When you lease a car rather than buying, your contract is for a certain number of years. Like the car lease, a term life policy is good for a certain number of years, ranging from 1 to 100. Term life policies are designed to meet your beneficiaries short term requirements and are strictly for those who want a life insurance policy that only pays a death benefit. For example, a term term life policy is great for the breadwinner of a young family who wants to provide for his or her children should something happen to them. Term life policies have no cash value, so generally they have cheaper premiums, making it an affordable option It's important to note though that the policy premiums tend to increase on an annual basis.
Pros: Inexpensive premiums that allows you to invest the remainder of your money elsewhere
Cons: Premiums can get more expensive as you age.
Permanent Life Insurance
Permanent life insurance policies are for the entire life of the policy holder, rather than for a set term. A good example of a permanent life insurance policy is that it's similar to buying a car rather than leasing. When you buy a car, it's yours for life. When you buy a permanent life insurance policy, it's yours for life, so long as you continue to pay the premiums.
Permanent policies generally combine a death benefit with a cash value, similar to a savings account. The premiums tend to be higher because of the cash value, but the overall value of the policy generaly increases over the years as you continue the policy. The main benefit of a permanent policy is this cash value as it can be used to fund retirement, pay for your kids college, and more.
Pros: Premiums are set for life and never increase. Policies have a tax advantage as your cash values grow tax-free.
Cons: Premiums are more expensive than term-life when you start a policy in your younger years.
Disclaimer: This site and its services are for informational purposes only and are not a substitute for professional advice, examination, diagnosis or treatment. See full disclaimer.
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