Term Life vs Permanent Life

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Term Life vs. Permanent Life

 

Much has been written or said about term life insurance versus cash-value or permanent insurance. The number of articles touting the well-worn phrase of “buy term and invest the difference” must by now be in the thousands. Yes, it is very likely that if you are in your working years, you really need at least some term life insurance. The risks your loved ones face without the protection are inarguably catastrophic. However, the problem with the trite advice of “buy term and invest the difference” is that it ignores crucial details unique to you and your life.

 

Term life is less expensive than permanent insurance for at least two important reasons:

 

  1. A term policy builds no cash value, no matter how many years you pay. Its main value is the potential death benefit paid to your heirs. 
  2. You are unlikely to die during the term period. Estimates are that about 2%-3% of all term insurance policies pay a death benefit versus 100% of all permanent insurance policies (that is kept in force) pay a death benefit to a beneficiary. In other words, you are going to die…someday, so permanent insurance is priced with that in mind.

 

Every financial pundit, advisor, or “expert” has an opinion on the term vs. permanent question. However, generic advice is largely irrelevant since every single person has a different situation with different needs. Usually left out of the discussion are the incredible tax advantages of permanent insurance that no investment can match. There are also certain living benefits found only in permanent policies that provide funds in the event of certain medical diagnoses, such as the need for long-term care funds. 

 

Lastly, if you look at the long-term costs of owning permanent insurance and it’s potential for substantial cash value appreciation, the overall cost may favor permanent or cash-value insurance.

 

Bottom-line: There is a place for term life and permanent insurance in nearly every person’s life, at some time in their life. The key to knowing which is best for you is a clear understanding of why you need life insurance and having a good understanding of which products can work to your ultimate advantage. A sound-bite, cookie-cutter approach will never provide that, but an experienced agent can. Contact us today to learn more. We provide the answers you need; you make the decision.