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What You Should Know About Life Insurance:
Advantages and Disadvantages of Term & Permanent Life Insurance
Term Life Insurance
Advantages
- Initially, premiums are generally lower than premiums for permanent insurance. This can allow you to buy higher levels of
coverage at a younger age when the need for protection is often greatest.
- Good for covering specific needs that will disappear in time, such as mortgages or car loans.
Disadvantages
- Premiums increase as you grow older
- Coverage may terminate at the end of the term
- Coverage may become too expensive to continue
- Generally, the policy doesn't offer cash value or paid-up insurance
Permanent Life Insurance
Advantages
- As long as the necessary premiums are paid, protection is guaranteed for your entire life
- Premium costs can be fixed or flexible to meet personal financial needs
- Accumulates a cash value that you can borrow against. (Loans must be paid back with interest or your
beneficiaries will receive a reduced death benefit.)
- You can borrow against the policy's cash value to pay premiums, or use the cash value to provide paid-up insurance
- The policy's cash value can be surrendered "in total" or "in part" for cash, or converted into an annuity. (An annuity is
an insurance product that provides an income for a person's lifetime or for a specific period of time.)
- A provision or rider can be added to a policy that gives you the option to purchase additional insurance without
taking a medical exam or having to furnish evidence of insurability. (more info about riders)
Disadvantages
- Required premium levels may make it hard to buy enough protection
- It may be more costly than term insurance if you don't keep it long enough
Next: Choosing a Life Insurance Company
