Which is better, term or permanent life insurance?

Which is a better term or permanent life insurance?

What is term life insurance?

Term life insurance is life insurance that only pays a benefit when the person insured dies.  There is no cash value

How is cost determined?

The cost of life insurance depends on a person’s age, health, lifestyle, personal habits, and occupation.  We make it easy for customers to see the cost of life insurance.  No personal information is required to check the general cost of life insurance.  That cost may change depending upon the factors previously mentioned. Many people may be able to obtain life insurance with few or no health questions asked or medical exam requirements.  Qualification for no-exam life insurance can be determined by answering a few simple questions.  

What is the difference?   

Term life insurance is an agreement between a life insurance company and a customer called an insured.  The agreement states that once approved; the life insurance company will pay a cash benefit in the event the insured dies.  The agreement called a policy would last for only a specific period.  Once the period ends, the contract ends, and there is no cash value.  Permanent life insurance is a life insurance policy that is designed to last the entire lifetime of the insured.  Like a term life insurance policy, the permanent life insurance policy is an agreement between the life insurance company and the customer, the insured.  The agreement lasts the entire lifetime of the insured.  

How does permanent life insurance work?

Since permanent life insurance policies are designed to last the whole life of the insured, they are more expensive than term life insurance.  Permanent life insurance policies may have a cash value available if the agreement is terminated by the insured before their death.  The amount of cash available depends on many factors; however, in most instance, the longer the permanent life insurance policy is in effect, the more money will be available.  An exception to this would be if the permanent life insurance policy were designed to have a death benefit and a cash value that is based on investment market values. Commonly referred to as variable life insurance, this type of life insurance is very complicated, and based on our experience, we do not offer variable life insurance because of its unpredictability.

Which is a better term or permanent life insurance?

Term and permanent life insurance have strengths and weaknesses.  The biggest difference between term and permanent life insurance is that the term is much less expensive if bought before middle age.  For many people, protecting their family or business early in their life is more important than covering their entire life.  If that is not the case, see the next example.  However, in this circumstance, term life insurance is far less expensive insurance than a permanent life insurance policy.  The following example shows the cost of life insurance increases as a person ages.  The cost of life insurance is very reasonable until about middle age.  In older years, the cost of life insurance increases significantly. 

Long term cost of term life insurance

If a person is concerned about providing life insurance for their entire life, then permanent life insurance is better.  There is a significant amount of propaganda supporting the purchase of term life insurance because it is the cheapest.  That may be true for younger customers.  As shown in the previous example, when an insured reaches advanced years, life insurance is relatively expensive. Had an older person purchased a permanent policy early in their life, it would be much less costly in senior years. 

Best time to purchase

In the previous example, the 25-year-old paid $550 compared to the permanent policy costing $8,940.  By the age of 70, the last example shows the cost of life insurance at 20,710.  The permanent policy’s cost is still $8,940.  If a person expects to live at least until their average life expectancy and they want to have a life insurance benefit available at that time, then the best life insurance would be a permanent life insurance policy purchased before mid-life. 

Cash accumulation in whole life insurance

Term life insurance is a superior choice if it is purchased for a specific number of years and before mid-life.  Permanent life insurance is better if you want life insurance to cover your entire life, especially in your older years.  The deciding factor comes down to what is necessary at the time and will fit into the customer’s budget.    

What is the right age to buy life insurance?

If you have someone in your life that will suffer financially if you die, that is when you need life insurance.   As we go through life, obligations change.  When you recognize those obligations, that is the time to buy life insurance.  The key to finding the best time to purchase life insurance is not to wait until it is too late.  Buying life insurance is not something that you do for yourself; it is something you do for the ones you love. Take a moment to watch the following recording from the non-profit organization Life Happens.  You can recognize the reasons why people buy life insurance.