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  • Should I buy term life insurance or permanent?
  • July 3, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    Should I buy term life insurance or permanent life insurance and invest the difference?

    This is perhaps the most controversial question of them all when it comes to selecting a life insurance policy.

    People who purchase life insurance generally associate themselves into one of two “camps,” who prefer one type of insurance to the other.

    The whole life camp consists of the “True Believers,” to whom buying life insurance is the answer to every problem – except, maybe, cancer. These people have some valid points in their favor, but neither camp owns the moral ground on this issue.

    The term insurance camp is often referred to, in derisory terms, by the permanent group as “termites” – those who prefer to buy term and invest in the difference.

    This means investing in the difference between the (cheap) term life insurance premium and the (expensive) permanent policy in stocks or mutual funds. The theory is that, the investment component of the two will accumulate more money than the permanent policy.

    Should I buy term life or permanent life insurance and invest the difference?

    As you might expect, the truth often lies somewhere in between the two opposing point of views.

    The two sides have polarized the issue into a dichotomy – an either/or situation –   when in reality the combination of term and permanent life insurance is the most appropriate and beneficial recommendation.

    Your specific needs and circumstance will ultimately determine which method is better for you. There is no one-size-fits-all solution to the life insurance planning problem.

    Term insurance is generally agreed to be an excellent short-term solution to a temporary need, while permanent life insurance is intended to remain in-force until your death or until your needs change.

    Most people need some sort of life insurance.

    As Dr. Joe Belth, Indiana University Professor Emeritus and one of the most respected critics of the life insurance industry, pointed out some years ago, there is no substitute for life insurance. No other financial product does, or will ever do, what life insurance accomplishes.

    While you are young, with a growing family and on a limited budget, you will probably need a higher death benefit that you can afford if you purchased only permanent insurance.

    Term insurance makes sense for you at stage in life. Rates are low, while benefits are high.

    At some point, however, you will probably need to own some permanent coverage in order to accomplish the intended purpose that life insurance is designed to fulfill.

    Permanent insurance provides coverage for the rest of your life. It is a vehicle for cash accumulation, it can provide liquidity to pay estate taxes, and it is a method for leveling out premiums.

    While term insurance is very inexpensive if purchased at younger ages, it becomes rather pricey beyond the age of 70 or 75.

    Buying permanent life insurance early on helps to ensure its affordability. The invested cash value element accumulates over time, helping to cover the increasing cost of the pure life insurance protection element in the later years.

    The tradeoff is paying a higher, more or less level premium for many years, to avoid the problem of unaffordability in the later years.

    Term insurance is temporary coverage intended to meet a short-term need over a specific time horizon. Permanent insurance is a long-term solution for lifetime needs. Again, which one is right for you depends on your individual situation and needs.

    If you would like further assistance, please email me at

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

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Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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