What kind of life insurance do I need?

Term vs. Permanent

Life insurance products generally fall into one of two groups, term insurance or permanent insurance. We’ll cover term insurance first, which we believe is the best choice for most people looking for life insurance.

Term

Term insurance is designed to provide coverage at a fixed cost for a defined number of years. If you choose 20 years you have selected a “term” of 20 years for your policy. This policy would provide a lump sum payment (“death benefit”) to your designated beneficiary if you were to die while the policy is in good standing.

Most life insurance companies offer term options of 10, 15, 20, or 30 years. The 30 year term policy will cost more than the 10 year term policy because it will be covering you into your older years. The tradeoff with the 10 year policy is that while it will cost less now, if you were to develop any health issues over the next 10 years, getting another policy later could cost significantly more.

We know what you’re thinking. A 30 year contract? That’s a really long time. Who knows where I’ll be in 30 years?! Well, keep in mind that you are not obligated to pay for 30 years. If at any point you decide to stop paying your premiums, the insurance company would just end your coverage. That’s it. No penalties or people knocking on your door. Your policy would lapse.

If you’d like to get a personalized cost estimate for term insurance, you’re in the right place. Find out what you need in just a few clicks. Get a quote now.

Permanent Insurance

As you might have guessed, permanent insurance is designed to provide permanent (“lifetime”) coverage. As long as you pay your premiums on time your coverage will not expire no matter how long you live.

Permanent life insurance also includes a “cash value” (think trade-in value) component that allows you to build up savings over time. It’s common to also allow the policyholder to take out loans against the cash value of their permanent policy or give up (“surrender”) the policy in exchange for some portion of the cash value.

The tradeoff for lifetime coverage and these fancy features is that permanent insurance costs significantly more than term insurance. For most people this means that an affordable permanent insurance policy will have a lower death benefit compared to a term policy with the same premium.

So what type of person is the best fit for permanent insurance? People that are wealthy, or are close to retirement might be in a financial situation that makes permanent insurance a good choice.

We’d like to be able to give you more specifics about permanent insurance policies, but the truth is that unlike term, the rules for permanent life policies can vary wildly from one product to the next. The devil is always in the details, as they say, so if you explore permanent insurance make sure you know them. Reviewing your situation with a financial advisor before purchasing permanent insurance is also recommended.

68%

of the life insurance coverage issued in 2015 was term insurance.

4Q15 LIMRA U.S. Retail Individual
Life Insurance Sales
Group of young women outdoors

Life Lessons…

No matter how many years of term insurance coverage you choose, you might look at your contract and see that it lasts longer than you expected. Continuing your policy beyond the number of years you initially selected is an option with most term policies. The rules will change in these “extra” years though. The premiums might be higher, or the death benefit might be lower, depending on the contract. It’s possible that you might be at a point where you don’t need life coverage anymore, or decide to start shopping for a new life policy. The important thing to remember is that it’s always your choice to keep paying the premiums to keep the policy active.

Got more questions? We can help!