For most people, death is not a real pleasant thought. It’s especially unpleasant for those who have loved ones depending on them. Knowing that your children, spouse, or other dependents are provided for can take an immeasurable load off your mind. Ideally, everyone will live to a ripe old age, but there are no guarantees. If something were to happen, insurance provides for those you have designated as beneficiaries. They will receive monetary benefits to help supplement loss of income, deal with remaining medical bills, and cover funeral and burial expenses.
But you have to ask yourself a question: how will I use life insurance? There are two types of life insurance: term and permanent. Each have a specific purpose and have different features, and the right choice depends on your situation.
Term Life Insurance
Term insurance covers a certain, pre-determined period of time. At the end of this period, it expires. Term is often used by young people who are the primary source of income for loved ones. For instance a couple with young children could purchase a 20 year plan. If something happened there would be money to help pay for the children. After 20 years (the children would no longer dependents) the plan would expire, as there would be no need for it.
Benefits: The main advantage to term is that it has cheaper premiums, especially if purchased at a young age. Extra money is always useful. It may be possible to convert expiring term to a permanent plan.
Drawbacks: Term does not build any cash value. The money is only accessible when the insured passes away. The lower premiums are a result of reduced financial benefits such as the ability to invest or access the money while still alive.
Permanent Life Insurance
Permanent insurance lasts until the insured passes away or cancels the policy. There are several options for permanent life insurance, such as a dividend paying policy. This makes it easier to get what best meets your needs and achieve goals.
Benefits: Permanent insurance does build up a cash value and will likely reach a point where the payout is actually greater than the premium you are paying. You won’t get rich, but if you never need the insurance, at least your money will be making money for you. Options like borrowing against your policy, dividend paying plans, and early cash outs are also possible.
Drawbacks: As you may have expected, the main drawback to permanent is higher premiums. The monthly premium will significantly increase from term to permanent. It’s important to understand the many benefits that come with a permanent plan so you can decide what is best for you.
Which Type of Insurance is Right for You?
Term and Permanent life insurance are two very different options, the right choice is based on a few things: your age, health, financial goals, number of dependents, etc. If you can afford permanent insurance, it has many added features which can give you tremendous financial benefit in the future. However, this many not be possible for everyone. If you would like to start a discussion about your options, the professionals at TJ Woods Insurance in Worcester, MA are here to help. If you’re looking for peace of mind and want to go over your options and find the right one for you, please contact us.
