Whats The Difference Between Term And Permanent Life Insurance?
Posted November 28, 2009 – 4:30 pm in: term life insuranceTerm is limited as it relates in years (ie. 5 year term, 10 year term, 20 year term), either have a “yearly renewable” in which your payments go up each year on the anniversary of your policy, and level term where you monthly/yearly payments stay the same for the life of the policy.
Permanent insurance builds cash value, but note that it is NOT an investment, so don’t buy it for this reason.
Go to Dave Ramsey’s web site, and you’ll learn that a 20 year level term is what you need to start with…then invest wisely!
3 Comments
Think of Term insurance like renting a house. It’s a temporary fix or something you get when you can’t quite afford to buy a house. Your rent will gradually go up (at the end of each term, term insurance premiums go up), eventually your landlord can kick you out whether you like it or not (eventually term insurance will expire and there’s nothing you can do about it) and when you leave you don’t get anything in return…you just hand back the keys and say thanks for the help for alittle while. In the short term, term insruance works out to be cheaper, but in the long run it’s a lot more expensive than buying a home. If you only need a place to crash for a year or two, terms the way to go. If you need something long term like 20+ years, term will cost you a fair amount of money.
Whole life insurance is like buying a home. It’s a more stable long term plan. The price will stay the same (whole life premiums are level for your entire life), your boss can never kick you out unless you don’t pay your mortgage (the premiums…whole life doesn’t expire [techincally most policies expire at age 104, but most never live that long to worry about it] if you stop paying premiums you lose the coverage…just like term) and if you decide to leave you get your equity back out of the house. You also have the option to put a little extra money into a home when you own it to increase the value (the cash value/policy fund), so when you do move on you get a little extra out of it if you want. Again, Whole life is good for a long term solution, but if you’re only planning on using it for a couple years and cancelling it’s not worth the inverstment.
Both have a purpose and both are great in certain situations. Anyone that flat out says renting is the best way to go, or that buying is the only way to go, doesn’t fully understand how each will benefit certain people.
one goes away, the other doesn’t. one can increase in premium, the other won’t.
Don’t live on advice of someone you’ve never met. get a financial planner who can speak about your specific situation. ALthough term is cheaper initially, it may not have lower lifetime costs. If you believe you will want/need life insurance when you die, then you should buy permanent as soon as you can afford it.
I asked this question earlier this morning, and I got some pretty good answers. I have provided the link for you.http://answers.yahoo.com/question/index;…