Choosing the right life insurance coverage is confusing. Let’s face it, you’re dealing with an event that is guaranteed to happen, but the problem is that there is no way to predict when it will happen. The basic fears are that you will outlive your coverage or that you will end up not having enough coverage, leaving you and/or your family scrambling to cover financial obligations.
Typically clients purchase life insurance to help with college education costs, income supplement, debt repayment, child/home care, estate protection, or leaving a legacy.
Do any of these needs apply to you? By exploring some of the differences between term and permanent life insurance coverage, you can see how one might fit your needs better than the other.
Term Insurance is a temporary form of insurance to help with temporary needs, such as covering a mortgage. For example, during the years where you have a mortgage out on your home, your family is financially exposed – especially if your salary is relied upon to make the payments. Without your income, the mortgage becomes instantly unaffordable. The good thing about a temporary need such as mortgage protection, is that mortgage loans are usually for a specified period of time (e.g., 30 year fixed, 20 year fixed, etc.). Knowing when your coverage needs will expire can help you overlap term insurance coverage for that specific period. The benefit of Term Insurance is that it is inexpensive. It was not created to cover final expenses, but to give temporary coverage during points in your life where your family is especially vulnerable. Typically, this type of coverage is not offered in the later years of life.
Permanent Insurance is exactly as its name implies, permanent. Some of your coverage needs you will want carried into your later years if you happen to live a long healthy life. An example of a permanent coverage need is final expenses. Many people are worried about having enough savings to cover these costs and don’t feel comfortable leaving the final expenses for family members to cover. The benefits of Permanent Insurance are that it is guaranteed to pay a death benefit (permanent), the price will not increase over time, and it also contains cash values. If leveraged correctly, you can use your permanent policy for coverage needs when you need it most and utilize the cash value in your policy later in life, when your coverage needs are less – all while continuing to keep your policy in force.
As a general rule, term insurance is set up to cover your temporary needs while permanent insurance is set up to cover the needs that can’t be outlived.
If you need help determining your coverage needs, please consult our life insurance specialist, Bryan – he will be happy to help you out.