Term and Permanent Life Insurance Compared
The decision to buy life insurance is one that every family will face eventually. Families with children may worry that the loss of one spouse will create a hardship on the remaining spouse, whether a family has one or two incomes to consider. That loss of income might make it difficult to care for and raise children or pay for a home. When trying to determine what type of insurance will cover these contingencies, there are two main forms of life insurance to consider: permanent life and term life insurance.
To understand the basic difference between permanent life and term life insurance, think of permanent life insurance as offering death benefits and a savings account or “cash value”. Permanent life carries a higher premium because more money will go into it in the beginning than a term life policy. The longer the policy has been in force, the higher the cash value increases since more money has been paid in, and the cash value has earned interest, dividends or both. Premiums for permanent life remain the same through the years.
Term life insurance will offer death benefits only and will expire at the end of the term, whether that is 10 or 20 years or is continued beyond the age of 70. If you live past the length of the policy, it expires and neither you nor your family gets money back. Some are advised to consider the saying that one can buy term life and then invest the difference. That is a decision a family should make if they feel this is an option they will make use of, and will indeed invest that difference.
Depending on your finances and what you have available to spend in the each month, consideration might be given to the amount of the monthly premium compared between the two types described here. Permanent life insurance is more expensive in the beginning but remains the same over the years. Compare this to term life insurance which carries a smaller premium at the outset and increases over time. One consideration to make is that with term life, it is possible to convert to a permanent policy at a later date.
