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Life insurance is one of the most important decisions that you will have to make. You should not take this decision lightly and you need to consider all of your options. There are lots of different types of life insurance available and they are not all created equal.
For decades, people have been debating between term and permanent life insurance. This seems to be never-ending. Term and permanent life insurance policies are two of the most common types of insurance.
The coverage that you choose depends on your needs and what you are looking for in a policy. You should make sure that you do your research and select the policy that will work best for you, your family and personal finances. To start, take a look at the term and permanent life insurance options. We’ve broken down the basics for you.
What is Term Life Insurance?
Term life insurance is a type of life insurance that lasts for a set duration or term. This may be 5, 10, 15, 20, 25, or 30 years.
You get to select the term that works best for your needs. The duration that you select will generally be dependent on how long you will need to be providing for your children.
Some people choose term life insurance for however long they are paying off their mortgage too. Term life insurance is widely considered to be the most affordable life insurance option. It offers very low premiums, which makes it easy for anyone to get term life insurance. The premium typically stays the same throughout the duration of your policy too.
Also, keep in mind that term life insurance is probably cheaper than you think. For example, rates start at just $16 a month at a company called Ladder.
If you’re under the age of 54, you can get a free quote without a medical exam — or even getting up from the couch.
Getting a quote from Ladder takes minutes.
With term life insurance, you should have the option to convert your policy into permanent life insurance if you would like to do so later on. This depends on the policy and it can be up to a certain date too.
What is Permanent Life Insurance?
With permanent life insurance, you are insured for however long you live. The premium remains the same throughout the duration of your life. This lifelong coverage can be nice to have and can give you the peace of mind you need.
You will be guaranteed a death benefit and the cash value will grow over time at a guaranteed rate. You may also be eligible for annual dividends, depending on the policy and company you go with.
Permanent life insurance is a more expensive life insurance option, especially when compared to term life insurance. This can make it less accessible to some people, depending on how much money they have or are willing to put toward life insurance.
What is Your Best Bet?
The best choice truly depends on your personal situation. It’s wise to look at your situation and to consider how long you would like to have life insurance for.
If you need to be insured for a short time, term life insurance is a good idea. You won’t be paying for more than you actually need. You will only be insured for the amount of time you need to be, such as while you’re paying off your mortgage or providing for your children.
“What you need depends uniquely on your need. Any agent that gives offers one product to all of his customers doesn’t do their due diligence.” Jason, CFAinsure.
If your needs are more long-term and you don’t want to outlive your policy, you should consider permanent life insurance. Your life insurance will last for the duration of your life. You won’t have to worry about being uninsured at any point as long as your permanent life insurance policy is in place.
A Place in the Middle
You don’t have to choose between term life and permanent life insurance policy options. There’s a great middle ground option to consider. This is guaranteed universal life insurance. It’s a good alternative to permanent life insurance, which is often not very affordable.
Guaranteed universal life insurance is sometimes referred to as “permanent term” because it is a combination of the two in some ways. There are smaller pieces of each of the two main life insurance types in guaranteed universal life policies.
You get to choose the age that the death benefit is guaranteed to last up to. This may be anywhere from 90 years to 121 years. This is noticeably much longer than a term, which gives you the peace of mind that you are insured for your entire life.
This is a good option for anyone who doesn’t want to pay for permanent life insurance but would still like to be insured for much of their life. It gives you the best parts of each of term life insurance and permanent life insurance.
If you select guaranteed universal life, you will be making a few compromises:
- First, you might not be able to get any cash value from your policy like you would with permanent life insurance.
- Next, you will be paying more than you would for term life insurance. Guaranteed universal life is still less expensive than permanent life insurance though.
- Finally, you have to make your payments on time. This ensures that you are able to maintain the guaranteed level premium. Missing payments or sending late payments can lead to a loss of the guaranteed premium, which means you could be without a guaranteed premium long-term. It’s very important to stay on top of your payments to make guaranteed universal life work for you.
For most people, these compromises are totally worth it and make a lot of sense to them. Many of them are not a big deal, but they should definitely be considered when you compare your life insurance options.
If cash value is very important to you, you may not be able to go with a guaranteed universal life policy. If you weren’t planning on using cash value anyway, you should be good with guaranteed universal life. Consider what you’re wanting or needing from your policy and go from there.
If you can’t decide between term life insurance and permanent life insurance, guaranteed universal life insurance is a great choice that’s right in the middle. If you get this type of life insurance, you will get a little bit from each of the two main types of life insurance. You will miss out on a couple of things, but it’s a good option overall.
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