This is a fairly common question that is asked by life insurance shoppers.
You aren’t alone in looking for the differences between term life and permanent life insurance.
To start, permanent life insurance will include all policies that aren’t term life insurance. Pretty basic, right?
Ok, that’s pretty obvious. Let’s get a bit more detailed.
Permanent life insurance are the policies that accumulate cash values slowly over time. Some examples of permanent policies are Whole Life, Variable Life and Universal Life insurance policies.
The differences between these three permanent policies can get pretty confusing in how they work.
Term Life insurance typically will not accumulate a cash value.
Now when a term life insurance policy begins to accumulate cash values, then it’s not really a term policy. It’s usually some form of a universal policy.
There are always exceptions however.
An example of this exception is a Term Life to Age 65 policy. It will usually grow a cash value in the middle years that it is in force. The cash value will start to decrease to 0 by the time you’re 65. This is when your coverage would end.
This post was intended to be straightforward, so enough of these confusing examples.
On to the basic comparisons!
TERM LIFE INSURANCE
1. Term life insurance is bought for a specific number of years (the term).
2. Your premiums will increase as you get older every year.
If you purchase a 20 year term at age 30 it will cost less than if you purchase a 20 year term at age 33.
3. Your premium cost will be lower than permanent. This is especially true for younger people who apply for life insurance.
4. There is no residual cash value with term life insurance. The term insurance will expire without any value by the time the term ends.
5. Most term life policies can’t be renewed past the age of 75 years of age. However, annual renewable term life policies can be renewed to age 100.
That’s the good news. The bad news is that renewable term at this age is extremely expensive.
6. A study by Penn State University revealed that less than 1 percent of term life policies will ever pay a death benefit.
PERMANENT LIFE INSURANCE
7. Your premiums will typically remain the same amount from year to year. This is typical, but not always depending on the type of policy.
8. Your premiums are much higher generally in the early years when compared to term life.
9. Under certain conditions you can discontinue your premium payments. Some of these permanent policies offer a significant degree of flexibility.
10. The interest that is earned on your cash value will be tax deferred.
11. Your coverage can stay in force to the age of 95 or more. Your policy will have a residual value or cash value. This is also called the cash surrender value.
12. You must be committed for the long term with permanent life insurance. It is a waste and does not make sense because little to no cash value will accumulate in the beginning years (typically).
13. You can have access to your cash value with loans an cash withdrawals.
These 13 differences of term life and permanent life insurance will help form which type of policy is right for you. Both of these policies have their strong and weak points.
Please give us a call if you have any questions about term life insurance or permanent insurance.
We look forward to speaking with you.