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Choosing Between Term Life vs. Permanent Life Insurance

There are various Life insurance products on the market. Having a clear understanding of each can help you determine which is the right fit for you, your family or other beneficiaries. Two of the most popular Life insurance products are Term and Permanent (or Whole) Life. There are several factors that impact what type of policy you purchase, including your current age, health status, your family’s financial needs, age of your children, mortgage and current debts, what retirement plans you have in place, your family’s future needs (college tuition), estate planning, and charitable donations, among others. 

Arroyo specializes in providing individuals with both of these products and can help you decide what policy is best for you. Here’s an overview of each to help you gain a better insight of the differences between each policy. 

Features of A Term Life Policy

As you move through the different phases of life – from buying a house to starting a family – the amount and type of Life insurance you need changes. You may be young and need coverage to help your family meet its obligations in the event of your untimely death. Term Life insurance in this case can be a good fit for you to help meet your current needs. Some of the features of a Term policy are:

  • Provides death benefits only
  • Pays benefits only if you die while the term of the policy is in effect
  • Easiest and most affordable Life insurance to buy
  • Purchased for a specific time period, such as 5, 10, 15, or 30 years, known as a “term”
  • Becomes more expensive as you age, especially after age 50
  • The term must be renewed if you want coverage to be extended beyond the term length
  • Can be used as temporary additional coverage with a Permanent Life insurance policy
  • Can be converted to Whole Life insurance

Features of A Permanent Life Policy

Permanent Life insurance is often purchased by people to cover financial needs that they will still have very late in life, after the typical Term Life policy would have expired. It can be used to fund business buyouts so that a family business or the insured’s stake in another business doesn’t have to be sold off, but rather can be bought out by the next generation. It can also be used to help beneficiaries pay taxes on what they inherit from the insured.

Some people use Permanent Life insurance to fund trusts for grandchildren or to leave a legacy gift to a favorite organization or charity. Others use smaller Permanent Life policies just to make sure there is enough money in the pipeline to pay off any debts and all final expenses. Some of the features of a Permanent Life policy are:

  • Covers you for life
  • Provides death benefits as well as a cash value accumulation that builds during the life of the policy
  • You typically must qualify with a health examination
  • Can be purchased without a medical exam, but at a higher cost
  • Takes 12 to 15 years to build up a decent cash value
  • Can be a good choice for estate planning
  • Cash value is based on how much the return on investment is worth
  • A portion of the cash value can be withdrawn or borrowed during the life of the policy
  • Initially has more expensive premiums than Term Life insurance, but can potentially save you money over the life of the policy if in force for a considerable number of years