Life Insurance Policies: Term vs Permanent

When it comes to purchasing life insurance, deciding which kind of policy to buy can be a challenge. But by learning about the characteristics of available life insurance policies and working together with an experienced life insurance agent, you’ll be able to choose the right policy to protect your loved ones.

Term Life Insurance

As the name suggests, term life insurance provides coverage for a certain period of time, as specified in your policy. This means that a death benefit will only be paid out if you die within your policy’s term. Because of this central characteristic, term life insurance policies tend to be much cheaper than permanent life insurance policies–making it a very appealing option to young adults or families who can’t spend a lot on life insurance.

Though term life insurance comes in two forms–level term (pays the same death benefit no matter when you die during the term) and decreasing term (the death benefit decreases throughout the duration of the policy)–level term policies are by far the most popular.

According to the Insurance Information Institute (I.I.I.) common types of level term policies are:

  • Annual (least popular)
  • 5 year
  • 10 year
  • 15 year
  • 20 year (most popular)
  • 25 year
  • 30 year

Many term life insurance policies are renewable, which means that you may be able to reinstate your policy after the term ends, although reinstatement may be contingent on passing a medical exam and will likely involve an increased premium. Additionally, the I.I.I. reports that most insurers will not renew a policy ending after 80 years of age.

Premiums for term life insurance are typically based on your age and health status at the time the policy is written. Some insurers guarantee your premiums to stay the same throughout the length of the term, but others may not make that guarantee (and increase your premiums throughout the term)–so be sure you’re aware of premium provisions before signing a policy.

Life insurance tip: Buying life insurance when you’re young and healthy will help you secure low premiums. Not a spring chicken? Take care of your health–stop smoking and exercise regularly to get the lowest insurance premium.

Permanent Life Insurance

Unlike term life insurance, permanent life insurance pays a death benefit whether you die they day after you sign the policy or 50 years later. Permanent life insurance policies are also appealing because of their ability to grow tax-deferred over a certain length of time–which can result in a large chunk of change. This cash value can be used in a variety of ways, providing additional benefits to policyholders and their families.

Because of these characteristics, permanent life insurance policies tend to be more expensive than term policies, which may not be conducive for young adults or families with income limitations.

Life insurance tip: Some term life policies can be converted to permanent life insurance policies, so if you’re interested in a permanent policy but can’t afford the premiums, ask your agent about term policies with this feature.

Permanent life insurance policyholders also have a wide array of policy options to choose from. The four common types of permanent life insurance are whole, universal, variable and variable-universal.

Whole life policies are the most common form of permanent life insurance and offer both a death benefit and the additional benefit of a savings account. If you buy a whole life policy, you agree to pay a certain amount for a predetermined death benefit. And, unlike a term life policy, whole life policies have the potential to earn annual dividends–which will earn interest if you let them accrue.

Universal life policies offer more flexibility, allowing you to vary how much you pay and when you make premium payments (with some limitations, of course). You may also be able to obtain a larger death benefit, provided you pass a medical exam, and like whole life policies, your universal policy may earn cash value over time.

Variable life policies incorporate a death benefit with a savings account that you can invest in stocks, bonds or mutual funds. While this may increase the value of your policy, it’s important to remember that if your investments don’t perform well, your death benefit will decrease. To avoid this, the I.I.I. says you can ask about variable policies that guarantee that the death benefit will not fall below a certain amount.

Variable-universal policies combine the features of variable and universal life policies, meaning that you have the investment options of a variable policy and the flexibility of premium payments of a universal policy.

Which Policy is Right for You?

Now that you have some idea of what policy options appeal to you, take the time to speak with a licensed life insurance professional that can answer questions and help you come closer to your life insurance decision. Because when you have all the facts, it makes finding affordable life insurance that much easier!

Life Insurance Policies

Life insurance is a kind of insurance policy that covers the costs after the death of the insured person. These costs include estate settlement costs, death taxes, or any charities. It is particularly meant for providing security for the insured’s dependents.

Life insurance policies are basically of two types: term insurance and permanent insurance. A term insurance policy is where the benefit is paid if the insured dies during the term of the policy. Term insurance polices can be renewed after the expiration of the policy. Some also contain a convertibility option through which it can be converted into a permanent policy. Premiums are generally small for term insurance policies. It is also difficult to get term insurance for older people, since their risk of death is greater. In a permanent term policy, the security is for the whole life of the insured. The premium is slightly higher for this policy. Other types of life insurance policies are: universal life insurance (the insured can select the premium to be paid); variable life insurance (the insured has the ability to direct the investments of the cash surrender value); variable universal life insurance, single premium life insurance (single up-front payment for the full life of the policy); and survivorship life insurance (joint insurance for two people).

There are many factors to be considered while choosing a life insurance policy. They are: the amount of insurance required, the type of insurance, affordability of the premiums, surrender charges, cash value projections, policy loans, dividends, mortality assumptions, the stability of the insurance company, and so on. Most insurance companies provide the same kind of offers. The best way to compare is to compare the premiums. If the premiums are the same, then compare the other benefits and terms and conditions.

There are hundreds of insurance companies that are offering attractive deals on all kinds of life insurance. You can contact an insurance agent for getting the right life insurance policy. The internet is also a very good source for obtaining quotes, comparing various policies and deciding on the best one.

How to Keep Your Life Insurance Policy From Lapsing, an Expert’s Advice

An all-too-common occurrence for life insurance policy holders is one in which someone purchased a life insurance policy several years ago, they have been paying premiums faithfully, and they unexpectedly receive a Lapse Notice. The Notice states, “… your premium is not enough to cover the policy expenses, please submit (a lot more) money to keep your valuable coverage.”

You’ll probably look to the insurer or agent for help. Here are some things you should consider to maintain your valuable coverage.

Often the policy owner thinks of life insurance the same way they think of auto insurance. They receive a premium notice, they pay the premium amount stated on the notice, and they believe they have met their requirement to secure the coverage. What they don’t realize is that with life insurance plans, such as universal life, indexed life, whole life and variable life, the premium is not the same as the cost.

Premium is what you pay to the insurance company. The policy fees are the cost of the coverage.

With these policies as the insured gets older the life insurance policy costs more. This is where the trouble usually happens. At some point in time, and often unbeknownst to the policy owner, the policy expenses exceed the premium being paid. This triggers a feature in the policy which allows the insurer to take money from the policy’s cash value, without having to notify the policy owner, to make-up any shortage of policy expenses. As this event occurs every month, the life insurance policy will be depleted of its cash value and move towards a lapse.

Before a life insurance policy lapse, the insurer is obligated to mail a lapse notice which allows the policy owner 31 days to pay enough premium to cover one month’s worth of expenses. The problem however, is that the expenses will typically have greatly exceeded the amount of premium the owner had been paying.

It’s common for the new premium to be three or four, or even more, times as much as they had been paying. This can put the cost of coverage out of their financial reach. The increase in premiums may not be justified, and a life insurance expert should evaluate the policy to determine if you’re being over-charged.

One thing you can do to make sure you aren’t caught off guard by increasing policy fees, and lose your valuable coverage, is to review your policy with an agent every year. In this meeting you should bring a recent Annual Statement for the policy and the agent should bring in-force illustrations. These are the tools that will best inform you of the policy’s expenses and where your premium amounts should be set for the year.

If you’ve received a lapse notice for your life insurance policy, here are a few things you can do:

1. Lower the death benefit to an affordable amount. The lower the death benefit the lower the premium will be.

2. Ask the insurer for the cost to keep the policy in-force to an age less than maturity. In other words, a universal life insurance policy, as one example, will stay in-force until the insured’s age 100. Fees are set based on this age assumption — 100. If you tell the insurer you only want the policy to stay in-force to age 86 (for example), the premium required will be less.

3. Ask the insurer if they offer a less expensive insurance product that you can exchange your policy for.

4. Get the assistance of a qualified agent to help you understand and make decisions about your policy.

5. Have a life insurance analyst review the policy, past payments and future payments to determine if you’re being over-charged for the coverage.