How to Choose Between Term & Permanent Life Insurance

Term and permanent policies provide distinct types of coverage

There are two main types of life insurance available in the marketplace today: term life insurance and permanent life insurance.Term insurance is only in force for a limited term of time typically 10, 20, or 30 years. Permanent insurance comes in several different versions (whole life, universal life, and variable life) and is in force for the owner's entire life, so long as the premiums are paid. In addition, term policies only cover the owner's life while permanent policies build up cash values that can be used as a savings vehicle.

Instructions

1. Consider your budget. Permanent insurance policies always require more premium than term policies. Your budget may only allow you to afford term insurance.

2. Contemplate the value of the cash accumulation. If you can afford permanent insurance consider how important the accumulation of cash values in the policy is to you. Many times the build up of the cash values in the policy can even be used to supplement ones retirement income.

3. Ask the insurance agent you're working with his thoughts. A good insurance agent should be able to thoroughly analyze your entire financial situation and make an unbiased recommendation.

Tips & Warnings

• Many term policies can be converted into permanent policies. If you want permanent insurance but can't afford it consider starting with a term policy and converting the policy into a permanent policy down the road.

• Not every insurance agent can write multiple insurance carriers. Consider working with a broker who can not only show you a variety of policy types but also a variety of insurers.

References

• Investopedia: "Permanent Life Insurance"
• Investopedia: "Term Life Insurance"