Looking for additional life insurance protection? Adequate life insurance coverage is often the foundation of any sound financial plan. That’s especially true if you have dependents. Without life insurance, your dependents could be in a challenging financial situation after you pass away. They may not have the income they need to fund their lifestyle, or they may face sizable debts. Life insurance helps resolve those issues.
Many potential buyers of life insurance are often confused about which type of policy they need. There are several different variations of life insurance available, but most fall into one of two broad categories: term and permanent.
Term may initially seem the most appealing because it’s generally less expensive than comparable permanent policies. However, there are other factors to consider besides price. Below are descriptions of both term and permanent insurance, along with factors to consider with each. Before moving forward with a policy, be sure to examine all options as well as your own needs.
As the name implies, term insurance provides life insurance protection for a designated “term,” or period of time. Those terms can be as short as 10 years or as long as 40 years. Generally, the longer the term, the higher the premium.
When the term is up, you often have the opportunity to renew your coverage. You may not have to go through underwriting again, but your premiums will likely be updated to reflect your older age. You could have the opportunity to convert your term policy into a permanent policy, or you may simply let your policy lapse.
If you let your term policy lapse, you don’t get back any of the premiums you paid while the policy was in force. That’s one of the reasons why term policies are often less expensive than permanent policies. You’re paying premiums, but there’s a possibility the insurance company will never pay the death benefit, since you may not die while the policy is in force
Term policies are effective solutions if you have a specific temporary need. For example, many people buy term policies to cover their mortgage. Once the mortgage is paid off, there’s no further need for coverage. Others will buy term policies while they have children in the home. Once the children are grown, the policies are allowed to lapse.
Again, as the name suggests, permanent policies stay in force as long as you meet the premium requirements. You can keep a permanent policy in force for the rest of your life, no matter how old you live to be.
Permanent policies also often have a cash value component. A portion of your premiums is put into a “cash value” account within the policy. That account may earn dividends, interest or even stock market returns, depending on the type of policy you choose. In the future, you can use that accumulation to pay the policy premiums or even to fund your retirement or other financial goals.
Permanent policies make sense when you have an ongoing need. For instance, you may want to provide funds to your heirs or your surviving spouse, no matter when you pass away. Or you may own a business that will need liquidity after your death. A permanent policy can resolve those issues.
If you’re not sure which type of policy you need, contact us at J. Harris Financial in Winston-Salem, North Carolina. We can help you analyze your needs and explore your options. Let’s start the conversation today.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
16067 - 2016/8/31