Term or perm

Which life insurance is best for you? 

Term insurance is for a specific period of time (10, 20, 30 years) and usually for a specific need. When the term expires, your costs will go up and you face the risk of being uninsurable. Life insurance premiums are based on your age and health. Term is considered an expense because it does not build cash value. 

The most common uses of term insurance are to pay off a mortgage or loan and to fund your children’s education in the event of a premature death of the primary breadwinner. It is the most affordable type of life insurance, and costs have come down over the past few years because of an increase in life expectancy. I know you have heard the term “buy term and invest the difference.” Unfortunately most Americans buy term and spend the difference.

Permanent insurance lasts your entire life; premiums will never increase and can accumulate cash value.

Permanent life insurance is considered an asset because of the cash accumulation provision. 

Cash value accumulation can be based on a fixed or variable investment account, index fund, interest rate and sometimes dividends. How the cash is treated depends on the type of permanent policy that you buy.

The cash in your policy belongs to you, accumulates tax free and can be accessed tax free. If you have heard the term “Be your own bank” this refers to permanent life insurance.

So what should you purchase? Most families will need a combination of term and perm. An analysis by your agent will illustrate the amount, need and reasons for both.

I have heard seniors say that they don’t need life insurance anymore. Their children are grown and they have paid for their funerals, etc. A commercial on television shows a couple selling their policy to “fund” their retirement. This is a bad idea unless you are destitute. 

When the primary breadwinner dies, the remaining spouse can be financially devastated. Any Social Security payments that the couple receives will be reduced to survivor benefits. If you are lucky to have a pension plan, the survivor benefits will decrease as well.

Health care costs increase as we age and can be financially devastating to the survivor. The life insurance death benefit passes income tax free to the beneficiary. The money that is received can mean the difference between a comfortable retirement and a life of financial need.

Life insurance is the best love letter that you can give to your family!