Most people, when they think of life insurance, can think of two types: term life insurance and whole life insurance.
There are two types of policies, but it is more accurate to think that they are temporary or permanent. It is like renting an apartment instead of buying a house. When you rent, it will probably be temporary, depending on your situation. However, when you buy a home, the feeling is more like you are settling in and will be there for the long haul. When you rent, you don’t build value. But when you buy, you can build more equity in your home the longer you own it.
Permanent life insurance can generate cash value, something a long-term policy cannot do. A term life policy only has monetary value when it pays a death benefit on a covered claim. Temporary and permanent policies also have some types of their own.
For example, term life insurance may include life benefits or critical illness coverage, as well as group term life insurance and key person life insurance, which is sometimes used in businesses. (Note: Life benefits and Critical Illness coverage are optional and available at an additional cost.) All of these are designed to be temporary coverage. This is why. The policy can guarantee premiums for 10 years, or up to 30 years, but once its term has expired, a term policy can become prohibitive in price. For this reason, coverage is, for all practical purposes, considered temporary.
Permanent life insurance – designed to last a lifetime
As the name implies, permanent life insurance is built to last. It is a common perception that permanent life insurance and whole life insurance are synonymous, but whole life insurance is just one type of permanent life insurance.
At first glance, a permanent life insurance policy may seem more expensive than a term policy, but you should consider that the big picture is fair when comparing the two options. Over the course of a full life, permanent life insurance can be less expensive, in part, because term policies become expensive if you require coverage after the initial term has expired. An investment item also helps build cash value in a permanent life insurance policy, taking the pressure off premiums to provide coverage.
If I left you scratching your head over your options, don’t worry! Understanding the benefits of each type is important, and choosing which policy is best for you is a unique personal experience. Contact me and we will review your options to find the right strategy for you and your family.