Temporary vs. permanent Life Insurance
Life insurance comes in two basic types: permanent and term. Permanent insurance is purchased to cover an individual for an entire lifetime, and it may also be used as a savings vehicle and wealth transfer vehicle. In addition to providing a cash benefit if the insured person dies, these types of permanent policies are designed to build up a cash value. Withdrawals or low interest loans may taken from the policy. These are legitimate uses for life insurance, but may not meet many working families needs right now. Examples of permanent life insurance are whole life insurance and universal life insurance.
Term life insurance is a simpler product, which is just purchased to provide a death benefit over a specified span of time. The term of the life insurance can vary. One year renewable term products are marketed, and so are thirty year products meant to cover an individual for their working years.
Advantages of Term Life Insurance
Because the insurer is only taking on the risk of having their insured customer survive a specified span of years, the premiums will much less expensive than a comparable amount of permanent life insurance. The face value, or amount of the death benefit, that can be purchased will usually be much larger. On the other hand, when the term of the policy has ended, the coverage is gone, and the policy will not have any cash value.
Most people look for the larger face values of temporary term life insurance to protect themselves when they have dependent children or spouses, or need to cover a large debt like a home mortgage. They purchase term insurance as a pure insurance product, without intending to use it as a savings vehicle. Since the premium will usually be much less than it is for a permanent policy, the extra money can be used for other savings and investment strategies.
Now many term life insurance policies come with options, or riders, that will provide extra benefits for an extra fee. Even with the riders, the premium will still be an affordable option. Return of Premium riders cost extra, but refund premiums at the end of the term. This provides a nice check right when the insured person is ready to retire, or perhaps a sum that can be used to purchase a smaller, permanent life insurance policy for final expenses. Other benefit riders can provide disability or critical illness coverage, or they can cover premiums in case of unemployment, accident, or sickness.
Some term policies come with an option to convert the policy to a permanent life insurance policy if the insured person’s needs change. This means that a working person with young children and a mortgage could purchase a large term policy to protect his or her family. Later in life, when the children are self supporting, he or she could convert the policy to a smaller whole life policy that can be used to leave money to heirs, cover funeral expenses, or settle debts.
If people depend upon you, do not leave their future to chance. Term policies are affordable, and will give your family peace of mind. Plus, with optional riders, they can be used to provide cash or permanent protection far in the future.