Term Life Insurance Vs. Permanent Life Insurance

New to life insurance? Like most newcomers, the initial dilemma you will face is making a choice between term life insurance and a permanent life insurance policy. This dilemma is easily resolved by understanding the difference between the two kinds of life insurance policies.

Permanent or Whole Life Insurance
Permanent life insurance, as the name suggests, offers you insurance coverage for your entire life, right up to the age of 100.

A permanent life policy has unique advantages. It offers you a guaranteed sum of life insurance coverage issued to the beneficiary in the event of the death of a policy holder. In addition, a permanent life insurance policy accrues non-guaranteed cash value in the form of dividends which increases the value of the policy over the years.

To put it simply, permanent life insurance is a combination of life insurance and investments. Should cash needs arise, you can withdraw cash from this kind of policy through policy loans. This kind of policy can also be used as collateral against a bank loan or for protecting your business. You can also surrender the policy and receive its corresponding cash value.

Due to the nature of this kind of policy, premiums are much higher than that of term life policies. However, while permanent life insurance does not need to be renewed annually, premiums need to be paid your entire life, or up to the age of 100 when the policy matures.

There are options within permanent life insurance such as universal and variable permanent life policies. These give the policy holder more control over the way funds are invested, and offer more flexibility for modifying the face value of the policy and the amount of premiums paid, at any given time. A variable life insurance policy is subject to market risks and therefore can gain or lose cash value very quickly.

Term Life Insurance
Term life insurance is temporary life insurance which you purchase for a specific period of term, usually between 1 to 30 years. This type of policy needs to be paid each year, failing to do so will cause the policy to lapse.

The advantage of term life insurance is the cheap premiums and the high death benefits. Unlike whole life policies, term life insurance accrues no cash or surrender value. It is basically payments made for life coverage that your beneficiary will receive if you die within the term period. If you outlive the term, you lose all payments made on a standard term life policy.

Simplifying the Dilemma
So how would you choose between the two kinds of life policies? Simplified, it’s a question of how much you are willing to pay in terms of premiums against the amount of coverage you want.

Whole life insurance is suitable for those who can afford to pay the premiums with a commitment to paying these for their entire life. They offer certain cash value advantages.

A term life policy can give you high coverage against low premiums. This is why term life policies are more popular.

Term life policies will especially suit you if you have a growing family. At that stage in life you may have need of high coverage to financially safeguard your family in the event of your untimely death. The benefits can be utilized to offset loans, a mortgage, a college fund for your children, or to help sustain your family’s financial needs.

Term life polices can be the optimal choice if your family has grown. You may want temporary life insurance to offset funeral expenses, pay off estate taxes, and provide financial security for your surviving spouse.

Term or whole life insurance? It is not a question of which one is better than the other. But rather, which one is most suitable for your particular situation. An overriding importance is to possess a life insurance policy to safeguard your family against the uncertainties of life.