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  • Differences between term life, permanent life insurance
  • January 13, 2014 5:05 PM
  • By Emily Miller

    Life insurance is a financial security net that protects your family when you passed away. It provides monetary support, which can be sued to pay for the funeral, help make ends meet, pay off debt or even help pay for future expenses such as college tuition.

    It’s tax-free payment that can be used for any purpose after an unexpected loss.

    One benefit that life insurance has over a direct inheritance is most life insurance policies are paid out quickly after a death, whereas an estate can take more time to process.

    According to the Life and Health Insurance Foundation for Education, there are two basic types of life insurance: term and permanent.

    Term life insurance

    Term life insurance is designed to be temporary. As the name suggests, it provides coverage over a set period of time—generally a term of a few years up to 30 years, although a 20- year term is typical.

    A common use of term life insurance is by parents who buy a policy that would provide coverage for their children until their college tuition is paid for and they’re on their own. Other times, a term policy might be used to guarantee that a spouse can still meet a mortgage payment or other bills if the other passes away.

    One of the main benefits is their initial premiums are cheaper than a permanent policy. Some term policies have a conversion option that allows them to be converted to a permanent policy (also known as whole life) rather than expire when the term is up.

    Permanent life insurance

    A permanent life insurance policy, also known as a whole life policy, provides lifelong protection. Although initially more expensive than term policies, they offer benefits of securing coverage when the buyer might be younger and healthier. As long as the premiums are paid, it stays in place even if the owner develops a condition that might make it hard or prohibitively expensive for them to buy a policy later on in life.

    Because it’s designed to last a lifetime, a permanent life insurance policy accumulates cash value, like a savings account that’s attached to the policy. The idea is that the cash value will grow over time and help offset any increase in premiums. Another benefit is that this cash value can be borrowed against.

    So which is better?

    Every situation is different and individual policies may vary among the many insurance companies offering them, so it’s important to weight the pros and cons of each type of policy, along with current and future financial needs, in consultation with an insurance professional before making such a decision.

  • Category: Articles Library, Life Insurance, Tips

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