The Pros and Cons of Term and Permanent Insurance
One of the biggest decisions you make when you finally start shopping for life insurance policies is deciding between a term and a permanent policy. Neither of these policies is objectively better than the other. They each have pros and cons that can work for or against you depending on your lifestyle, your budget and your goals. Let’s take a look at some of the pros and cons of both term and permanent life insurance to help you start making your decision.
Permanent Life Insurance
- Because this type of policy offers lifetime coverage, the initial premium can be locked in for life, making the policy much more affordable than it would be if you had to take out a new one later.
- Permanent life insurance accrues cash values. This is an asset that can be accessed later for tax-free loans.
- Permanent life insurance doesn’t require updated underwriting later on in life, so even if you become ill, you won’t suffer with more expensive premiums.
- Permanent life insurance is more expensive than term so it might not be a good fit for those with a tight budget.
- Permanent life insurance policies can have surrender charges if you decide to surrender the policy and take the cash values early on.
Term Life Insurance
- Term life insurance premiums cover the cost of insurance only, which generally makes them very affordable.
- You can buy a term for a very long term, such as 30 years, which allows you to lock in your rates for that amount of time.
- Sometimes, term policies can be converted and/or renewed.
- If, at the end of the term, you decide you want to convert or renew the policy, you may need updated underwriting and the new rates may be based on your increased age and health.
- Because there is no cash value accrual, there is no opportunity for guaranteed growth or tax-free loans later in life.
There are many other features to consider before deciding which policy is the best fit for you, your family and your budget. Your best bet is to contact an experienced life insurance agent in order to get a full overview of how each policy can benefit you.