“Term or permanent life insurance?” One of the most frequently asked questions we are asked is, “Which one should I consider?”
Term insurance usually provides the largest amount of insurance protection at the lowest initial cost. For this reason, it’s the type most people start out with. Because term policies end at a specific point—the end of the term—they are best for providing protection for large needs with specific endpoints.
Some typical periods people might choose term to cover include the time:
• remaining on their mortgage obligation.
• they plan to continue to work and have others relying on them.
Permanent insurance is designed to last as long as a person lives and typically makes a good supplement to term insurance. Most will likely still want insurance after their term coverage ends, either for life-long or unplanned needs or for needs with an unpredictable or extended end date. Good reasons to have permanent insurance include helping to take care of:
• the costs associated with their death, such as funeral costs, outstanding medical bills, and estate taxes.
• someone who becomes or may still be dependent on them, such as children who are not yet independent.
“Can’t I just buy another term policy later?”
For most people, buying a series of term policies throughout their lives as their situation changes is not the best strategy. Life insurance usually gets more and more expensive as they age. So, once they pass a certain age, the cost can become prohibitive. Also, if they develop a health condition, that increases the amount they have to pay for life insurance or makes them unable to qualify to buy life insurance. For these reasons, a permanent policy can help to protect or “lock in” their ability to qualify for life insurance (insurability).
“Why shouldn’t I just buy term and invest the difference?”
You may have heard the statement “Buy term and invest the difference.” In this scenario, the difference between the permanent life insurance premium and the traditional term life insurance premium is invested in a mutual fund, annuity, stocks, bonds, or another investment vehicle. The idea is that investing the difference would replace or exceed the cash value accumulation of permanent life insurance.
When deciding if this strategy is right for them, they need to consider what best suits their personal objectives and circumstances.
For example:
• They may not have the discipline to actually invest the difference.
• They need the discipline not only to invest the difference but also to invest early while the difference between the amount of their term insurance premium and the amount of the premium for their permanent insurance is the greatest. They need to make up early for the dramatic increase in the cost of term insurance at later ages.
• If they need to renew or reapply for their term policy, the cost may become prohibitive as they get older or if they develop health problems.
• If health problems occur, they could become uninsurable and not even be able to purchase term insurance when it comes time to renew.
• The investment they choose may not perform as hoped for.
Carefully weigh knowledge about habits and self-discipline along with the benefits, risks, product features, and any current or future charges associated with any insurance and/or investment product before making a decision about how to address particular needs and choosing between term or permanent life insurance.
Term or Permanent Life Insurance: The Power of Choice
When people are prepared for a wider range of events, they give themselves more options. By working with their family to think about life insurance now, they can make sure their family will feel financially secure when they are gone.
The Power to Protect:
• Helps protect loved ones from the loss of income
• Helps protect a family’s current standard of living and ability to remain in their home
• Helps protect a family from unexpected expenses caused by a loss of life
The Power to Comfort:
• Makes it possible for loved ones to realize their dreams and fulfill the hopes of the one they lost
• Provides financial comfort at one of the most critical moments in a family’s life
• Gives people confidence that they have planned well for their family’s future
The Power of Financial Stability:
• Helps stabilize a family financially in case of the loss of a primary wage earner or stay-at-home parent
• Helps cover unanticipated bills related to their estate, medical bills, and funeral expenses
• Provides a death benefit that is almost never subject to federal taxes
• In the case of permanent coverage, it can provide an early cash payout if and when emergencies arise
What is your choice? It’s usually wise to consult a professional when weighing the options and we will be happy to answer your questions and provide valuable insights. Contact your Ziff Agency professional directly here.