Term Insurance Vs. Permanent Insurance

Time and time again, as life insurance agents, we get asked the same question: “Should I buy term insurance or permanent insurance?” The answer to this question is not so simple. You must first ask yourself: What are my needs, and what can I afford?

Simply stated, permanent insurance (otherwise known as Whole Life or Universal Life) is much more expensive than term insurance, with some obvious benefits. For example, a 30-year-old male looking for $500,000 of coverage can purchase a Term 20 policy for $36 per month, whereas a permanent policy with the same amount of coverage would cost him $195 per month. The term insurance would expire when the male is 50 years old, whereas the permanent insurance will last for a lifetime as long as he continues to make the payments. If the male in this example decides he can only afford $40 per month in insurance, he has a decision to make. He can either go ahead with the term insurance, or take less coverage under a permanent insurance policy.

To answer the question as to whether you should buy term insurance or permanent insurance, we would advise you, first and foremost, to get the right amount of coverage, and then worry about the length of the coverage. By this, we mean that it is essential to get enough insurance to pay off any debt, as well as replace any lost income that would arise due to death. Most families’ insurance needs are higher in the first 20 to 30 years of coverage, and taper off after they have paid off their debts (i.e. mortgage, tuition, car loans, etc.) and their children have moved out of the house. Therefore it is crucial to have sufficient coverage in order to protect your family in the worst-case scenario of your untimely death, and the income you provide to your family is lost. Once you have the right amount of coverage in place, then you can look into adding some permanent coverage if you can afford it. We find that once an insurance need is recognized, many of our clients will opt to mix that need between mostly term insurance and some permanent insurance for estate planning purposes.  At the end of the day, you want your family to be safe financially if you were to pass away tomorrow. Whether your insurance was term or permanent will not matter; however, the amount of insurance you have purchased to protect your loves ones will have a direct and significant impact on their lives.

Article Written by: Mike Castagna