Not all life insurance is the same, though. There are different types of policies available, and each is designed to meet different needs and objectives. Many of these policies fall into two broad categories: term and permanent.
Any good financial plan has to be built on a base of sound financial protection against serious risks. Often, that protection comes in the form of life insurance. Life insurance protects your family, your business, your lenders and other interested parties from the ultimate risk—your passing.
There’s no universal right or wrong answer when it comes to making a decision between term and permanent insurance. It depends on your unique needs and goals. Below are descriptions of both term and permanent, along with the benefits and important considerations for each.
As the name suggests, term insurance is life insurance coverage that lasts for a certain term, or period of time. Terms can be as short as 10 years or as long as 30 or 40 years. Generally, the longer the term, the higher the premium.
When the term is over, you usually have the option of either renewing the policy or letting it lapse. If you choose to renew, the premium may be recalculated to reflect your age. If you let the policy lapse, you won’t have any more premiums, but you also won’t have coverage.
Term insurance can be a good strategy when you have a finite, temporary need. For instance, if you buy a home with a 30-year mortgage, you could use a 30-year term policy to provide coverage while you’re paying off the loan.
Many people also use term insurance while they have kids in the home. Once the kids move out of the house, there may be a reduced need for life insurance coverage. Term insurance could make sense in that situation.
One of the appealing aspects of term insurance is that it is often affordable, especially when compared with similar permanent policies. However, once the term ends, the policy terminates and you may not have anything to show for your premiums.
Permanent insurance is life insurance coverage that stays in effect for life, assuming you meet all the premium requirements. There are various types of permanent insurance, including whole life, universal life and others.
One big distinction between permanent and term insurance is the existence of something called “cash value” in permanent policies. When you own a permanent policy, a portion of the premium goes into the policy’s cash value. This account may earn interest or dividends over time and could grow to a significant amount of money.
In time, you may be able to take loans or withdrawals from the permanent life insurance policy to help fund retirement, to pay for emergency expenses or for other financial challenges. You also may be able to use the cash value to support the cost of the insurance, eliminating the need for further premiums.
As you might expect, permanent insurance may be more suitable when you have a permanent need. For instance, you may want to offer a base level of support to your spouse should you pass away. That need may exist whether you pass away in 10 years or 50 years.
Generally, permanent policies will have higher premiums than similar term policies. Also, permanent policies can vary significantly in how they’re structured and in how they accumulate cash. Take time to review a number of options before you decide on a specific policy.
Your life insurance agent can help you find the right policy and coverage to meet your needs. Hal Hammond in Sarasota welcomes the opportunity to help you develop the right life insurance strategy for your needs, goals and budget.
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