Term Life vs. Permanent Life Policies
Term life and permanent life insurance are both quality options, but one may work better for you than the other. Here’s what you should know about each.
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Term Life Insurance?
The definition of term life insurance is in the name — you purchase coverage, and it lasts for a set “term.” These terms last anywhere from 10 to 30 years.
Coverage in a term life insurance policy ranges from $100,000 to $500,000. As long as you’re within your term, you’re covered if you, the policyholder, pass away. You’ll also have to keep up with your monthly payments to keep your coverage. Otherwise, it may lapse, and you’ll lose your coverage.
This coverage, called the death benefit, can be used for anything. However, since it’s only issued after you pass away, you’ll need to choose someone to use it on your behalf. This person, or people, is your beneficiary.
Permanent Life Insurance?
Permanent (whole) life insurance does not last for 10 to 30 years. Instead, as the name suggests, it’s permanent — once you purchase a policy, you’re covered for life as long as you keep up with your monthly payments.
The death benefit for permanent life insurance ranges from $2,000 to over $1 million. There are a few types of permanent life insurance policies — whole life, universal life, and final expense.
On top of the death benefit, you’ll also receive living benefits. A portion of your monthly premium payments will go into an account that increases your contributions slowly over time. Unlike the death benefit, you’ll be able to use this money while living.
Universal life insurance also has a death benefit but focuses on living benefits, with the potential for high investment returns. Final expense is another permanent policy that is incredibly easy to qualify for but has a smaller death benefit.
Pros and Cons of Each Type
Term life insurance has a lower monthly premium than permanent life insurance. However, it doesn’t offer any living benefits and limits death benefits up to $500,000 rather than $1 million.
If you’re interested in an affordable policy and don’t mind renewing your policy every ten years or so, term life is your best option. If you would rather have something permanent, receive living benefits, and don’t mind a potentially higher premium, a permanent life insurance policy is your better option. Remember, however, that there are three different permanent policies to choose from.
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