Permanent vs Term Life Insurance: What's The Difference?

Permanent vs Term Life Insurance: What’s The Difference?

by Sep 19, 2019Financial Planning

Life insurance is a difficult subject for many people. If the idea of planning for your death gives you the heebie-jeebies, well…you’re not alone. But as unpleasant as the subject may be, having good life insurance is a key part of a balanced financial plan. It also provides a sense of relief, peace of mind, and security.

Before you rush out and sign up; however, it’s important to know that not all life insurance plans are the same. There are generally two types of life insurance: permanent life insurance and term life insurance. Knowing the difference between permanent vs term life insurance is critical when planning your long-term financial future.

What Is Term Life Insurance?

Term life insurance is the most common, and the simplest type of life insurance. When you buy term life insurance, you agree to pay either a monthly or annual premium for a certain amount of time, like thirty years, for example.

That amount of time is the term. If you die during the term, the beneficiary you specify (your spouse, children, etc.) receives whatever benefit (usually a monetary payout) is specified in your insurance agreement.

In general, the premiums for term life insurance are lower than those for permanent life insurance. This is because you are only paying for life insurance for a limited amount of time.

What Is Permanent Life Insurance?

As its name implies, permanent life insurance does not have a fixed term, and therefore never expires. Once purchased, your permanent life insurance policy will last until you die, even if you live to be over a hundred.

Because permanent policies never expire, they are typically more expensive than term life insurance policies.

Another feature of permanent life insurance policies is that they also act a bit like an investment because the policies accumulate a cash value over time. This additional facet of permanent life insurance is often confusing to those who don’t have experience with it. Further complicating the matter, some permanent policies are sold more like investments than insurance, and it can be difficult for new buyers to understand precisely what they’re purchasing.

Choosing Between Permanent vs Term Life Insurance

Deciding between permanent vs term life insurance often comes down to factors like how old you are, your current financial situation, and your long-term financial goals. Before making a purchase, it’s a good idea to speak with an experienced financial planner.

Speaking with a financial professional can help you understand the short and long-term benefits of each type of insurance and how it will fit into your “big picture.”

To learn more about permanent vs term life insurance, and which type might be right for you, please contact us today for a free consultation.

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