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The Pros and Cons of Term Life Insurance vs. Permanent Life Insurance

2023-07-05 09:40 COVU Insurance Insurance Agency Insurance Advice Life Insurance Clients Blog Deductible Consumer Tips
There are two major types of life insurance policies – term life insurance and permanent life insurance. Understanding the differences between the two is necessary when deciding which type is best suited for your needs
Life insurance is an essential investment that provides your loved ones with financial support in the event of your unexpected passing. But with so many types of life insurance policies to choose from, it can be challenging to determine which one is the right fit for you. In this blog, we will compare term life insurance and permanent life insurance to help you understand the pros and cons of each.

Term Life Insurance

Term life insurance is a straightforward life insurance policy that offers coverage for a specific term, typically between 10 and 30 years. If the policyholder dies during this term, their beneficiaries receive a lump sum payment, known as the death benefit.

Pros:

Affordable premiums:
Term life insurance policies offer lower premiums than permanent life insurance policies because they are designed to provide coverage for a specific term.
Simple and straightforward:
Term life insurance policies are easy to understand, and there are no complicated investment components to worry about.
Flexible:
Term life insurance policies can be customized to fit the policyholder's specific needs, including the length of coverage and death benefit amount.

Cons:

Limited coverage:
Term life insurance policies only provide coverage for a specific term, and once the term ends, the policy expires. If the policyholder outlives the policy, they will need to purchase a new one.
No investment component:
Term life insurance policies do not have any investment component, which means there is no cash value accumulation.
Age restrictions:
Term life insurance policies may have age restrictions that make it difficult for older policyholders to qualify for coverage.

Permanent Life Insurance

Permanent life insurance provides coverage for the entire life of the policyholder and includes an investment component that accumulates cash value over time. Permanent life insurance policies include whole life insurance, universal life insurance, and variable life insurance.

Pros:

Lifetime coverage:
Permanent life insurance policies offer coverage for the entire life of the policyholder, regardless of age or health status.
Investment component:
Permanent life insurance policies include an investment component that accumulates cash value over time, which can be used to supplement retirement income or pay for future expenses.
Borrowing options:
Policyholders can borrow against the cash value of their permanent life insurance policy to pay for unexpected expenses.

Cons:

Higher premiums:
Permanent life insurance policies have higher premiums than term life insurance policies because they provide coverage for the entire life of the policyholder.
Complex:
Permanent life insurance policies are more complex than term life insurance policies and require a greater understanding of the investment component.
Lower returns:
The investment component of permanent life insurance policies may not offer the same returns as other types of investments, such as stocks or mutual funds.
In conclusion, both term life insurance and permanent life insurance have their pros and cons. Term life insurance is affordable, simple, and flexible, while permanent life insurance provides lifetime coverage and an investment component. Ultimately, the right life insurance policy depends on your unique needs and financial goals, to determine which type of life insurance is the best fit for you.