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The Differences Between Term Life and Permanent Life Insurance
Although most people don’t like to think about it, getting life insurance is an important decision for you and your family. Buying life insurance now helps protect your dependents later if you’re not around to take care of them. After you’re gone, your family can use the proceeds to cover funeral costs, mortgage and other loan payments, college tuition, and other expenses.
If you're not sure what type of life insurance you should get—term life insurance or permanent life insurance—you’ll need to understand the difference between the two to make the best decision for you and your loved ones. Once that's clear, you can select the type that best suits your needs.
There are two main types of life insurance: term and permanent. Term life insurance is the easiest to understand and has the lowest cost. Permanent life is the most well-known and tends to be more expensive than term, but offers additional benefits—most importantly that it remains in force for your lifetime rather than just a set number of years.
Term life insurance versus permanent life insurance
Term insurance is ideal for those who are more concerned about only receiving a death benefit. This type of policy is common for most consumers and only lasts for a specified amount of time. The premiums are lower and will remain the same if you die within the time frame of the policy. Upon your death, the insurance company will pay your beneficiaries the death benefit, then the need to pay for further life insurance is no longer necessary.
Permanent life insurance is more of a "deluxe" policy. It provides both a death benefit and a savings element. The policyholder can borrow against the built-up cash value for home expenses, a college education, or they can convert the monetary value into a retirement fund. This type of policy is more expensive, but the premium won't fluctuate during the life of the policy.
Let's review the pros and cons of both types of insurance so that you can make the best decision for yourself:
Term Life Insurance
Pros
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It’s among the least expensive types of life insurance available (but may vary based on your medical condition).
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The premium stays at a fixed rate through the duration of the policy.
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If you get this insurance at a young age, your monthly payments will remain low until the end of the policy.
Cons
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If you have declining health, it can be extremely difficult to get new coverage after the level term period expires.
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Once the level period ends, your premium will increase annually.
Permanent Life Insurance
Pros
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You can build up cash value inside the policy as long as you pay the premium due.
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You can maintain coverage for life. If you surrender the policy, you'll receive some, if not all of the cash value.
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When you decide to withdraw funds from your insurance, the money will be income tax-free up to the amount of premium you have paid to date.
Cons
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Permanent life insurance has higher premiums initially than term insurance.
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Payments for premiums are required for a long period of time, even if there are income changes in the household.
Although there are big differences between term life insurance and permanent life insurance, only you know which one is right for you and your family. Getting a life insurance policy will do a world of good for your peace of mind and your family's financial security.
To get a free, no-obligation quote for life insurance, call 866-496-2657 today!
Joan Cleveland, CLU, ChFC, REBC
Joan Cleveland, CLU, ChFC, REBC leads SWBC Life Insurance Company as President and CEO. With more than 30 years of experience in the life insurance industry. She holds her Agent licenses for Life, Accident, Health Insurance, and has multiple FINRA securities Licenses. Joan is a frequent industry speaker and media spokesperson. She is a member of the Board of Directors of the Consumer Credit Insurance Association, the Texas Association of Life and Health Insurers, as well as the Life Insurers Council. In addition, she is chair of LIMRA’s Strategic Marketing Issues Committee.
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