There are multiple pros and cons to both Term and Permanent Life Insurance Coverage. Many people dismiss one in favor in the other. But depending on the individual situation, one or the other, or even a combination of both may prove to be the best fit.

Term Insurance

Term is great for a family or individual that is just starting off in their life. It provides inexpensive coverage in order to protect the income earning potential of the individual.

Pro’s

  • Provides inexpensive coverage for a specified period of time(10, 15, 20, 25, 30 years)
  • Term Insurance insures a probability rather than a certainty of death. Which brings the cost of insurance down significantly
  • Term policies allow you to convert them into permanent policies during the term of coverage

Cons

  • Premiums are solely an expense, policy generates no investment return or cash values
  • If you find you still need coverage after your term policy is expiring, the cost of the next term policy will be significantly more expensive, due to aging 10, 20, or 30 years
  • Conversion provisions typically are not very competitive with most products in the market, they are meant to be there for people who cannot secure coverage otherwise.
  • If your health status has changed when applying for a new policy, you can find yourself uninsurable.

 

Permanent Insurance

Not all permanent policies are treated equally, it is important to consult with an advisor that has access to multiple insurance markets rather than a captive agent, that is only able to sell in house products, as they will typically not be as competitive.

Permanent policies are meant to be in force for the individuals entire life. Which will be more expensive because the carrier is insuring a certainty that you will die rather than a probability(term). Everyone will die at some point, the question is when.

Pros

  • Provides investment returns, depending on product choice, can be conservative or near market like returns(4-10%)
  • Cash values can be withdrawn of taken as a loan at any time. Rather than having to go through a bank, you become your own bank. Can be used to pay for emergencies, college tuition, house down payment.
  • Policy provides tax advantage investment product, when structured correctly, can provide tax free income for the life of the policy

Cons

  • Cost will be higher, due to the living benefits and the policy is designed to be in force for one’s entire life
  • Policies can vary depending on product choice which can cause confusion and be complicated to understand
  • Investment aspect carries market risk

Which solution is right for you? Schedule a free consultation to discuss your Life Insurance needs today.