Term vs. Permanent Life Insurance: Picking the Right Policy

10 Jul Term vs. Permanent Life Insurance: Picking the Right Policy

Life insurance can be complex, and choosing the right policy can feel overwhelming. In this blog, we’ll break down the two main types of life insurance: term vs. permanent life insurance, to help you understand which one might best fit your needs.

Understanding Your Life Insurance Needs

Before diving into the specifics of term and permanent life insurance, it’s crucial to consider your individual needs and goals. Here are some key questions to ask yourself:

• What is the primary purpose of my life insurance? Is it to provide financial security for your family in case of your death? Or are you looking for a policy accumulating cash value you can access during your lifetime?
• What is your current financial situation and future plans? Are you young and starting a family? Are you nearing retirement? Your age, income, and future financial goals will significantly impact your choice.
• How much coverage do you need? The ideal death benefit amount will depend on your dependents’ financial needs and outstanding debts.

Term Life Insurance: Affordable Coverage for a Specific Period

Term life insurance offers temporary coverage for a set period, typically 10, 20, or 30 years. If you pass away within the term, your beneficiaries receive the death benefit. However, the policy expires if you outlive the term and no payout is received.

Benefits of Term Life Insurance

The benefits are –

• Significantly lower premiums than permanent life insurance make it a budget-friendly option for those who need coverage during specific life stages, such as raising children or paying off a mortgage.
• Flexible coverage amounts: You can choose a death benefit that aligns with your current needs and adjust it as your life circumstances change.
• Simple and straightforward coverage: Term life insurance focuses solely on providing a death benefit, making it easier to understand than permanent life insurance policies.

Drawbacks of Term Life Insurance

The drawbacks are –

• Temporary coverage: The policy expires, and no payout is received if you outlive the term.
• Premiums can increase significantly upon renewal: As you age, your premiums for renewing a term life policy can rise dramatically.
• No cash value accumulation: Term life insurance does not build cash value you can access during your lifetime.

Permanent Life Insurance: Lifelong Coverage with Additional Benefits

Permanent life insurance offers lifelong coverage, which remains in effect until your death. In addition to providing a death benefit to your beneficiaries, these policies also accumulate a cash value component. This cash value grows over time and can be accessed through loans or withdrawals (subject to policy terms and conditions).

Types of Permanent Life Insurance

They are –

• Whole Life Insurance: This is the most common type of permanent life insurance. It offers a guaranteed death benefit and a predictable cash value growth rate. Premiums are typically fixed and remain level throughout the policy.
• Universal Life Insurance: This permanent life insurance offers more flexibility than whole life. Policyholders may have some control over their premiums and death benefit within certain limits. Cash value growth is not guaranteed but may be tied to market performance.
• Variable Universal Life Insurance: This option offers the potential for higher cash value growth through investments in the stock market. However, it also carries the risk of potential losses.

Benefits of Permanent Life Insurance

The benefits are –

• • Lifelong coverage: Your beneficiaries will receive a death benefit regardless of when you pass away.
  • Cash value accumulation: This provides a source of funds you can access for various needs, such as retirement income, emergencies, or educational expenses (subject to policy terms and conditions).
  • Predictable premiums for some policies (whole life): Fixed premiums can be easier to budget for over the long term.

Drawbacks of Permanent Life Insurance

The drawbacks are –

• • • Higher premiums compared to term life insurance: The added benefit of cash value accumulation comes at a cost.
    • Cash value growth may not be guaranteed: This is especially true for universal life and variable universal life policies.
    • More complex policies: Permanent life insurance policies often have more features and require careful consideration and understanding before purchase.

Find the Right Life Insurance Policy with Kevin S. Dougherty Insurance Agency

There’s no one-size-fits-all answer when choosing between term and permanent life insurance. The best option depends on your individual needs and goals. At Kevin S. Dougherty Insurance Agency, our experienced agents will work closely with you to understand your situation and recommend the policy that best aligns with your financial objectives. Contact us at Marci and Kevin today to get started. Call us at (630) 575-0800 for further assistance.