Term or Permanent Life Insurance?

One of the most common issues that people have when buying life insurance is choosing between term and whole coverage. If you’re in the market for life insurance, this is one of the most difficult decisions that you’ll have to make.

When trying to make the decision there are several factors that you will have to take into consideration. There is not really a right answer as to which insurance option is best. It really depends on your situation and your financial needs.

What’s the Difference?

In order to make an educated decision, you have to understand the difference between the two types of policies. Term life insurance is a type of policy that lasts for a specified number of years. If you pass away while the policy is in effect, the insurance company pays your beneficiary the face value of the policy. If you outlive the policy, it will expire. You may have the option of renewing it at a much higher premium rate.

By comparison, permanent life insurance lasts for your entire life. It is guaranteed to pay out a death benefit when you pass away as long as the policy is still in effect. If you keep in your premiums, the policy will be in effect. Whole and universal insurance are two types of permanent coverage.

Cost

One of the biggest factors for you to consider when making this decision is the cost of the insurance premiums. As a general rule, term insurance is much cheaper than permanent insurance. This is because a relatively small percentage of term policies actually end up paying a death benefit. Most people outlive their term policies.

Permanent life insurance costs a little bit more because it is guaranteed to pay out at some point in the future. It also contains a cash value component, which requires the insurance company to collect more money from the insured. When you pay your premium to a permanent life insurance policy, part of your money is going to a death benefit and another part is going toward an investment account. The insurance company invests this money on your behalf and then the cash value grows.

Long-Term Needs

When making a decision to go with permanent or term life insurance, you have to look at your long-term needs. Not everyone needs a life insurance policy 30 years into the future. The reason that many people choose term life insurance is because most of their pressing financial needs are taken care of in the first 20 or 30 years of the policy. For example, an individual would not want to leave a big mortgage debt to his family if he were to pass away. After 30 years, the mortgage is paid off. He may also want to ensure that his kids are taken care of financially while they are still too young to move out of the house. After 20 years or so, this need is usually taken care of.
At the same time, some people like the idea of being able to leave a lump sum payment to their spouses or children when they pass away. For those people, a permanent life insurance policy may be a better option to consider.

Lack of Control

Some people prefer to save the difference between what they would pay for a permanent life insurance policy and what they currently pay for a term life insurance policy. By taking this money and investing it, they can often earn superior returns compared to what the insurance company is offering.

Other consumers do not like the responsibility that comes with this strategy. They know that they will probably spend the money that they save and it will never be invested. Because of this, putting money into a permanent life insurance policy makes more sense for this type of person.

Tapping the Cash Value

One of the advantages that permanent life insurance has over term life insurance is the cash value. After a certain number of years, the cash value can get up to a sizable amount. This money can be tapped into by the policy holder at any point. By using a policy loan, the policy holder can borrow the money and then repay it at some point in the future. The advantage of doing this is that the funds from the policy loan are not taxable. This means that some wealthy individuals can use a permanent life insurance policy as a way to avoid paying taxes during retirement.

Making the Call

The choice of which policy to go with largely depends on your preference and whether you like the control of investing your own money. Once you decide what type of person you are financially, you can decide which policy is the best for you.

If you are considering to purchase life insurance, you should go online to Kanetix.ca to compare quotes from top life insurance companies in Canada. Apply onine at www.Kanetix.ca today to compare quotes and save money.

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