Still not sure what the difference is between “term” and “permanent” life insurance? The confusion ends here.
There are two basic types of life insurance: “term” and “permanent.”
Term offers protection for a specific period of time, usually 10, 15, 20 or 30 years. One of the reasons it’s so popular is that term premiums are initially lower than permanent premiums. That’s a big plus for young families who typically have the greatest need for financial protection.
Term is a good option if you need to cover a specific expense that will eventually disappear, such as a mortgage or college for your kids. The idea, of course, is to make sure those expenses don’t become a financial burden for your loved ones.
Permanent insurance, such as “universal” or “whole” life, provides lifelong protection. In addition to the death benefit, the policy also has a “cash value” that grows until it reaches its full value (also called its “maturity”), typically when you turn 95.
Permanent is a good choice if you want long-term coverage with a predictable premium. As your policy’s cash value grows, you may be able to borrow against your policy to pay for financial emergencies or other needs, like making a down payment on a house or paying your daughter’s tuition. If you die before with an outstanding balance, whatever you still owe, plus accrued interest, are simply deducted from the death benefit proceeds.
Remember, however, life insurance is designed to provide protection. Additional benefits, such as borrowing money from your policy, should be secondary considerations.
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