In this article we are going to look at a common query or question in terms of life insurance, the term vs permanent life insurance debate. We have had numerous questions regarding the differences and pros and cons of these life insurances. Hopefully this article will help to answer some of these questions.
When you are shopping for the right life insurance, you are certainly faced with a particular decision that you need to make when you are in a car shop for a new car: should you lease or should you buy?
Well, those are not the terms used when dealing with insurance but the concept of term and permanent life insurance are the same as buying and leasing.
When we speak about term insurance, it is like we are talking about leasing a car. When you purchase a death benefit for a specified period, it usually comes in different periods like five, ten, or twenty years. When the period is through, the situation will be much the same as turning in the leased car. When the deal is done, you can simply walk away.
Now, in the case of permanent life insurance, it is like in the case of buying a car that you plan to drive for the rest of your life. As a matter of fact, permanent life insurance stays active as long as you are alive. It will generally pay a death benefit, and also accumulates a cash value in the long run.
There are actually two kinds of life insurance and they are usually appropriate for different situations. Term insurance is usually designed for those individuals who are only interested in a death benefit. Say for example, a young mum who wants insurance so that her child will be able to go to college in case she dies. When she is already not around, the child can have something to spend for his or her college years until he establishes a career for himself. With this kind of insurance, there is no absolute cash value so the premiums are often lower than that of permanent life insurance. But while the insured person grows older, the premiums also increase.
Permanent insurance is a combination of death benefit and cash value or a savings component which increases as tax-deferred. Many policy holders can borrow from the cash value to pay important things. They can also convert this cash value into a retirement fund.
There are various types of permanent life insurance plans and they usually give the person the option to decide on where the savings can be invested. Term insurance on the other hand is usually cheaper
The following are some of he advantages of permanent life insurance over a term policy.
- Permanent policy premiums don’t escalate and can be held to death. Benefits are passed to beneficiaries tax-free.
- Permanent life insurance has cash values that grow at a tax-deferred rate.
- If in case you go with a term insurance, you should commit yourself o a regular savings and other investment programs.
So hopefully this has cleared up some of the differences between the types of life insurance and give you some ideas on what suits you better in regards to term vs permanent life insurance.