subject: Five Important Criteria When Choosing Between Permanent And Term Life Insurance [print this page] Permanent and term life insurance have distinctive qualities and advantages. Determining the right type for you and your loved ones requires consideration of these differing qualities. Understanding the differences between the two types can help you get a more accurate and economical life insurance quote.
Term life insurance provides coverage (guarantee of benefits) for a limited period of time. These time periods are determined by the customer at the beginning of the period. They may be anywhere from five to 25 years, on average.
The customer pays a fixed monthly payment, determined at the beginning of the period. The amount of the monthly payment depends mainly on the amount of coverage he or she needs. The customer is guaranteed that, as long as monthly payments are made, he or she will be entitled to a benefit payout during the valid term.
The customer has two choices if he or she wishes to continue coverage after the period has expired. He or she can renew the existing policy for another set term. The customer can choose the same amount of coverage, or increase/decrease the benefit payout amount.
The policy holder may also choose to convert to a permanent one. This type differs from term life insurance, mainly in its nature as a form of investment. It also requires a medical exam and isn't confined to a particular time period.
Either form accomplishes a similar purpose: to provide for family or to leave a gift to charity upon death. Consumers should consider these criteria based on their own life circumstances before requesting a policy quote:
1) Dependents: Consumers with dependents living with them have an obligation to ensure that they will be provided for. Those without dependents typically have less need for a larger benefit payment. Thus, spending more money on a permanent policy may not be necessary.
2) Financial investments: Permanent policies include an investment component. Monthly payments build up a cash value for the buyer. The buyer may later choose to cash in the contract, use the cash to reduce monthly payments or increase the final benefit amount.
Consumers who already have investments elsewhere may not need to purchase a policy with a cash value to it. This form of investment may not always provide the kind of returns that other investments do (like stocks or mutual funds).
It may be more prudent for these customers to spend less by purchasing term life insurance. Any extra money that would have gone into a permanent policy can instead be invested in more lucrative ways.
3) Life circumstances: It's always important to protect important, life-long investments. The most critical ones are home(s) and property.
Consumers with bigger mortgages may need more protection and coverage than those who don't own real estate or whose mortgages are lower. Term life insurance coverage may not be adequate for consumers with greater financial liabilities.
4) Income level: Consumers in higher tax brackets (more than $150,000 annually) typically require more coverage. This may necessitate a permanent policy.
Another good alternative is purchasing both types. This ensures extra coverage while accumulating some cash value, but may be less expensive than purchasing only a permanent one.
Consumers in lower tax brackets may also benefit from purchasing both types. However, if monthly income is tight, term life insurance will probably provide adequate coverage at a lower monthly cost.
5) Age: Older customers typically need not spend extra money on a permanent policy. The coverage provided with term life insurance is usually adequate, and monthly payments will be lower and more manageable. This is particularly true in the case of those who are retired or plan to retire in ten years or less.
Determining your priorities will help ensure that you get the most accurate life insurance quote. You'll also be able to get more intelligent advice from your permanent or term life insurance agent.
by: Brian Greenberg
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