Permanent vs. Term Life Insurance: Which Policy To Choose?

Permanent vs Term life InsuranceWhen considering the right life insurance policy for you, there are a lot of things that should factor into your decision including age, health, finances, etc. The two major types that are offered are permanent and term life insurance, both of which include benefits and drawbacks that should be discussed thoroughly before choosing your policy. In this article, we will touch on what each policy can do for you and how it can affect your family.

Permanent Life Insurance

Permanent life insurance, also known as “Whole Life Insurance,” offers many additional benefits to that of term life insurance.

The Advantages of Permanent Life Insurance:

The first and most obvious benefit is the length of the policy—it is a lifelong policy if you continue to pay your premiums.

Second, the benefit of going permanent as opposed to term is the cash value. Cash value accumulates over time on a tax-deferred basis and can be used on anything of your choosing. You can even borrow cash value to use on a down payment on a home or paying for your child’s education.

If you do so, the borrowing rates are relatively low and if you do not repay the loan, you in turn receive a reduced death benefit. Death benefits for permanent life insurance involve the insurance company paying a fixed amount to the beneficiaries of the insured without any spending restrictions.

The Disadvantages of Permanent Life Insurance:

With the extended coverage comes a larger price tag. Initially, the premiums for a permanent policy will be higher than that of a term policy. However, if the policy is in force for a considerable number of years, you will likely save money long-term.

Typically, it takes 12-15 years to build up a considerable cash value so it will take a significant amount of time to reap the benefits of a permanent life insurance policy over a term life insurance policy.

Term Life Insurance

Term life insurance is the more affordable alternative to permanent life insurance.

The Advantages of Term Life Insurance:

Unlike permanent life insurance, term policies are designed to provide those who need coverage over a specific period when they can’t afford a permanent policy. When searching, and investing in a life insurance policy, you’ll quickly find that term life insurance is a much easier and affordable process than that of its counterpart.

You purchase your policy for a term, 5-20 years. If your premiums continue to rise because of the length of your term, you can always convert your policy to permanent if you feel you need coverage for an extended period of time. Like permanent life insurance, term policies offer death benefits that too, are generally income tax-free.

The Disadvantages of Term Life Insurance:

Although term life insurance policies are cheaper than permanent life insurance, as you age the policy prices will go up, especially after your reach 50 years of age. While term life insurance does provide death benefits, they are only guaranteed if the insured does during the term of the policy. If they die even a day after the term ends, the chosen beneficiary won’t receive a penny. Also, if you decide to renew your policy after your original term expires, your premiums may increase if your health has deteriorated.

If you are unsure which policy is right for you, contact our knowledgeable life insurance agents at TJ Woods Insurance to help you find the policy that best suites you. We can provide you with the coverage you need at an affordable rate that will keep you feeling comfortable with the road ahead.