-Tyler Redmon
Introduction:
When I began working at On Track Financial, I joined knowing almost nothing about life insurance. However, through my time working towards my MBA and studying for my life insurance license, I have learned just how important and versatile life insurance can be! Today, I'd like to share some of my findings on term and permanent life insurance, including their differences in expenses, expiration, value, and purpose. I'll also briefly touch on whole, universal, and variable universal life insurance, as well as riders and cash value.
Term Life Insurance:
While studying for my exam, I discovered that term life insurance offers coverage for a specific period, like 10, 20, or 30 years. If the policyholder passes away during the term, their beneficiaries receive the death benefit. However, if the policyholder outlives the term, the policy expires without any payout.
Key aspects of term life insurance:
- Lower premiums: Term life insurance is generally more affordable than permanent life insurance, which makes it an attractive option for young, healthy individuals starting their insurance journey.
- Expiration: The policy expires at the end of the term, so the policyholder must renew or convert it to a permanent one to maintain coverage.
- No cash value: Term life insurance doesn't accumulate cash value over time; its primary purpose is to serve as a financial safety net for your loved ones.
Permanent Life Insurance:
On the other hand, permanent life insurance provides coverage for the policyholder's entire life, as long as they keep paying the premiums. Unlike term insurance, permanent policies accumulate cash value over time, which can be accessed during the policyholder's lifetime.
Three Types of Permanent Life Insurance:
The three main types of permanent life insurance are whole life, universal life, and variable universal life. Below are some key aspects of permanent life insurance:
- Length: While term policies have a predetermined length of coverage, permanent policies are designed to last a lifetime if they are properly designed and funded.
- Premiums: Permanent policies have higher premiums than term policies due to their lifelong coverage and cash value accumulation, but there is more flexibility in making these premium payments than a term policy.
- Riders: Permanent life insurance policies often include riders—additional features or benefits that can be added to the policy, such as long-term care or disability coverage.
- Cash value: The cash value component of permanent life insurance offers financial flexibility, as it can be borrowed against, withdrawn, or used to pay premiums during the policyholder's lifetime.
Conclusion:
Choosing between term and permanent life insurance depends on many factors like age, financial situation, and long-term goals. Term life insurance might be suitable for those seeking an affordable policy for a specific period, while permanent life insurance could be a better fit for those looking for lifelong coverage and additional flexibility.
As the new year continues to unfold, I encourage everyone to evaluate their insurance needs and create or update their life insurance policy accordingly. Choosing the right life insurance policy can provide peace of mind and financial security for you and your loved ones. And who knows, maybe I'll be the one helping you make that decision soon!
Check out this calculator to help you determine which type of life insurance is best for you: Life Insurance Calculator - How much life insurance do I need? (bankrate.com)
