Term Versus Permanent Insurance

A common question: Term vs Permanent?

This is most common question asked in life insurance, “What is difference between term and permanent life insurance, and what is best for me?”  Knowing the differences between these two will help you decide which policy is best for you.

The main difference is that permanent life insurance lasts as long as you pay the premiums — or at least until you’re 100.  By comparison, term life has a fix period of time that the policy is in effect.  The differing forms of permanent life insurance include whole life, universal Life, and variable life.

Another distinguishing component of a permanent policy is its cash value. A portion of the premium you pay covers your Insurance and part goes into a cash fund. Term life insurance policy provides coverage for a stated period of time.  The term or time of policy can be typically 10, 15, 20 or even 30 years.

Term life insurance limits the Insurance company’s liability  with the fixed term and no cash value or benefit.  Term life can be issued as either fully underwritten (requires medical exam) or a no exam life insurance.  As a result, term life insurance costs significantly less than permanent.

Today, many financial planners prefer to sell term insurance over permanent. The main reason is that term is significantly more economical and can provide the necessary when people need it. In addition, for some, it make’s insurance affordable for the large amounts of coverage they need to protect their family.

Term can be tailored to just the years you need it. You may have a long-term need—until a new baby finishes medical school. Or a short term need—just a few more years until the kids are on their own. You pay premiums only for the time you need protection.

Most Term policies always include the option for a conversion right to permanent insurance. This option lets you convert your Term policy for a Permanent policy. Term can be a smart play for lower premiums when young, while having the option of converting to permanent Insurance if your health changes.