Choosing between Term and Whole/Permanent Life Insurance

While term life insurance seems to be a relatively short period solution, permanent or universal life insurance coverage is more advantageous for those who have built more assets and accumulated more money. A universal life insurance policy can be tapped into as a retirement account to allow for “golden years” enjoyment.

Many people make their choice here based on their budget. The fact that a term life insurance policy may not ever make a payment (i.e. the fact that you will probably survive your policy) means that insurers can offer lower costs. A whole of life policy – with its guaranteed payment at some point – is consequently more expensive. The choice you make here will be a personal one and may well depend on your financial circumstances. The vital thing to remember is that some form of life insurance cover is vital for most of us – especially if we have a family to consider and we can consequently get great protection from either kind of policy at the end of the day.

Permanent life insurance is designed to provide coverage for the duration of your life, although in some cases, the policy may be limited up until a specific age. When you reach that age, the cash value of the policy will be paid to you. Because you are building a cash value with permanent life insurance you can also withdraw from the policy in order to pay for important expenses such as education or home improvement costs. Another major advantage to permanent life insurance is that it allows you to build up cash value that is tax-deferred. Whole life is used for building investment capital through the years. It’s a good idea for those who cannot save, as it creates an estate to pay for funerals, compensates for lack of a pension, or pays taxes on large estates.

There are two divisions of permanent life insurance; whole life and universal life. A whole life policy will pay dividends under certain circumstances and also has the advantage of premiums that do not fluctuate. With a universal life insurance, the premium payments can be changed by the owner of the policy. This type of flexibility can be advantageous when you have a life changing event.

Permanent life insurance works well for individuals who are interested in long term insurance and who like the idea of building up cash value with their policy they can use to meet future needs. It is important to recognize this type of insurance is more expensive than term insurance. It should also be noted that if you take out a loan against your policy, your death benefit will be reduced.

Another important distinction between Term and Whole Life is the fact that at the end of the Term Policy, the policyholder is left with nothing but his own health.  On the other hand, with a Whole Life Policy the insurer often takes a portion of the premium and places it into a savings account for the policyholder.  In case of emergency later in life, the Whole Life Policy Holder can access that money to meet some needs while still living.  As you can imagine, the Insurance Company raises the price they charge for access to all of this.

Depending on your situation, each form of insurance can be very beneficial and offer many great opportunities. Below you will find a more in-depth explanation of each form of insurance providing advantages and disadvantages of both.