Term vs. Permanent Life Insurance

Of all the decisions you make when it comes to life insurance, choosing between term and permanent coverage may be the most important. Both types of policies offer unique benefits and drawbacks, so it's important to understand the differences to make an informed decision.

Term Life Insurance

Term life insurance is designed to provide coverage for a specific period of time, typically 10, 20, or 30 years. During this time, your beneficiaries will receive a death benefit if you pass away. Once the term ends, the policy's level premium expires, and you'll need to renew or purchase a new policy if you want to continue coverage.

Pros of Term Life Insurance:

1. Lower Cost: Term life insurance is generally less expensive than permanent life insurance, especially if you're young and healthy.

2. Simplicity: With term life insurance, you're paying only for life insurance coverage, which means you don't have to worry about investment or savings components.

3. Flexibility: You can choose the length of your policy term based on your needs. For example, if you have young children, you may want a 20-year policy to ensure they're financially protected until they're adults.

Cons of Term Life Insurance:

1. No Cash Value: Unlike permanent life insurance, term life insurance policies don't accumulate cash value over time.

2. No Coverage After Term Ends: If you outlive your term policy, you'll need to renew or purchase a new policy, which can be more expensive as you get older or if your health changes.

3. No Asset Value: Term life insurance is not viewed as an asset, therefore it cannot be used as collateral towards a loan, or sold for a Life Settlement without first being converted to a permanent policy.

Permanent Life Insurance

Permanent life insurance is designed to provide coverage for your entire life, as long as you continue to pay your premiums. It also includes a savings component that accumulates cash value over time, which you can borrow against or use to pay premiums.

Pros of Permanent Life Insurance:

1. Lifetime Coverage: When structured correctly, permanent life insurance guarantees that your beneficiaries will receive a death benefit, regardless of when you pass away.

2. Cash Value: The cash value component of permanent life insurance can be used for a variety of purposes, such as funding retirement, paying off debts, or funding a child's education.

3. Estate Planning Benefits: Permanent life insurance can be used as part of an estate planning strategy to help reduce estate taxes and avoid probate.

4. Considered an Asset: Permanent life insurance is considered an asset just like a home or retirement account.  As such, it may be used as collateral towards securing a loan or you may choose to sell the policy for cash, at a later time in life, via a Life Settlement. 

Cons of Permanent Life Insurance:

1. Higher Cost: Permanent life insurance is generally more expensive than term life insurance, especially if you're younger.

2. Complexity: Permanent life insurance policies can be more complex than term policies, and they often require ongoing management.

3. Lower Death Benefit: Because permanent life insurance includes a cash value component, the death benefit is often lower than with term life insurance.

Choosing the Right Policy for You

Ultimately, the type of life insurance policy that's right for you will depend on your individual needs and circumstances. If you're young and healthy and looking for basic coverage to protect your loved ones, term life insurance may be the most cost-effective option. On the other hand, if you're looking for a lifelong policy with estate planning benefits, permanent life insurance may be a better fit.

When deciding which type of policy to choose, consider your budget, financial goals, and overall life plan. And remember, no matter what policy you choose, it's important to regularly review and update your coverage to ensure it continues to meet your needs over time.