When you’re shopping for life insurance, you can get confused with all the different options available. Choosing the wrong kind of insurance will only spell disaster if it leaves your family and loved ones without the actual protection they need.
Considering whether you should get permanent or term life insurance is one of the most important decisions to make. Here’s what you need to know about each insurance type:
Permanent Life Insurance
Just like the name suggests, this insurance is meant to stay in place for your whole life. It offers a death benefit, but can also be used as an investment or savings vehicle. When compared to a term life insurance policy, permanent coverage costs more.
There are 3 types of permanent insurance you can choose from:
Whole life insurance: As long as the policy is in effect, this insurance type offers fixed premiums. You can build up cash value in this policy as you pay your premiums.
Universal life insurance: When compared to whole life insurance, this offers a little more flexibility. You have the option to adjust your premiums or death benefit within certain limits. As long as your premiums are covered, you can borrow or withdraw against the funds held in your account.
Variable life insurance: For those who don’t mind taking a higher risk, this insurance may prove to be a better choice. The policy’s value is related to market performance- your premiums and benefits may increase or decrease over time.
Term Life Insurance
This insurance type acts as a short-term safety net for your finances. Term life policies are fairly straightforward when compared to the various types of permanent insurance.
You need to buy a fixed amount of coverage, and the policy remains in effect for a specific period of time, usually between 5 to 30 years. To continue your coverage, you’ll have to renew your policy once the term expires. You also have the option to convert it to a permanent insurance policy. When compared to permanent insurance, the premiums for term life policies are much lower.
If you decide to renew your policy after its initial term, you can expect your premiums to increase. However, keep in mind that term life policies don’t let you build any cash value, unlike permanent coverage. This means that you can’t get any money back once your policy expires unless you’ve included a return of premium rider. You may need to pay more for coverage if you choose a policy with this option.
