These days, in a constantly changing world, it can be hard to make big decisions about the future. This is especially true when it comes to choosing which type of life insurance to go for. But, making big decisions like this is a whole lot easier when you have all the facts to help you, and if you read on these are what we’re going to lay out for you.
So, what is the difference between term and permanent life insurance? This is the topic we’re going to be exploring in this article:
What is term life insurance best for?
When it comes to term vs permanent life insurance, term life insurance is mainly intended to be used as temporary coverage from the financial impact of a death.
What is permanent life insurance best for?
Permanent life insurance is similar but has some key differences. It too provides coverage against the financial impact of a death. But, the difference between term life insurance and permanent life insurance is that the coverage permanent life insurance offers against the financial impact of death is lifelong.
As well as death coverage, permanent life insurance also offers estate planning, and the option to combine your coverage with tax-preferred cash value growth.
Who is term insurance for?
Term life insurance is generally more suitable for people who are the owners of a business, as well as homeowners who have a mortgage, and young families to look after.
Who should use permanent life insurance?
Permanent life insurance is more for people who have a long-term perspective, as well as people who use registered investment accounts like TFSAs and RRSPs.
What’s good about term life insurance?
Term life insurance policies are easier to get to grips with and gives you the ability to purchase a lot of coverage at a low price. As well as this, term life insurance can also be rather affordable for a younger person.
What’s good about permanent life insurance?
But with permanent life insurance, you get coverage for the entirety of your lifetime, even if your health begins to fail. What’s more is, the costs of most types of permanent health insurance are guaranteed never to go up.
As well as this, you can borrow or cash in against the accumulated value of your permanent life insurance policy. Permanent life insurance also offers you tax-preferred cash value growth opportunities, if your TFSAs or RRSPs are topped up.
And of course, permanent life insurance is more inexpensive for people later in life than when they began the policy.
What’s bad about term life insurance?
There’s no denying that term life insurance can be advantageous in many cases, but it has some pitfalls.
With term life insurance, your coverage is temporary, meaning that all protection ends as soon as the term ends, though a term can last 10, 15, 20 or even up to 30 years. But what’s more, the price of term life insurance then goes up significantly if you renew it after the term ends. So term life insurance can then become quite expensive.
What’s bad about permanent insurance?
Permanent insurance coverage is often far more expensive to buy, compared to term life insurance and this could be prohibitive for some younger people on lower starting-out income.
When is it cheapest to get term life insurance?
As we touched upon earlier, term life insurance is most cost-effective for you to purchase when you are young, and when only temporary coverage is needed. For example, you could get coverage designed to last only until your children are no longer financially dependent on you, or until your mortgage is paid off.
When is it cheapest to go for permanent life insurance?
When it comes to permanent life insurance, this type of coverage is, of course, most affordable later on in your life, when you have a large estate to be passed on to a charity or heirs, or when you have built up a sizable cash value in your insurance policy. If you are in a higher tax bracket, this is also something that helps to make permanent life insurance more affordable. So this is more affordable for the maturer financially stable person.
What about my work insurance?
Thankfully, if you have existing insurance from your job, both term life insurance and permanent life insurance typically work well with this existing insurance, without clashing.
Can I convert this insurance?
Yes, you will have the full ability to convert your term life insurance policy to a permanent one at any point. However, it is not possible to convert permanent life insurance to term life insurance.
What do I need to consider with term life insurance?
When it comes to term life insurance, you must bear in mind the fact that adult children today are increasingly more financially dependent on their parents for a longer period than ever before. This financial dependency could even extend on for a long time after your term policy expires.
These days, mortgage and consumer debt are also increasingly common, meaning that you could end up still being in debt years after your term life insurance ceases being a cheap option.
What do I need to think about with permanent life insurance?
Permanent life insurance can certainly present a steep upfront cost. But with the lifelong coverage this type of insurance provides, permanent life insurance is an increasingly attractive option for many consumers. So, you must consider whether the cost outweighs the benefit in the long term.
What about tax-exempt life insurance?
Did you know that some people qualify to buy life insurance through Immediate Financing Arrangements? If you buy your life insurance in this way, you only pay the cost of the policy’s interest. Since the insurance policy’s interest is a tax-deductible cost, your own money is free to stay in your business investments or real estate. Check out wealthinsurance.com to find out more about this.
Do I need an advisor?
Choosing a type of insurance that’s appropriate for all your needs is a large and complex decision, so it’s important you get it right.
Speaking to an advisor is something that can help you choose the best cover and features to suit your needs. An advisor will be able to understand your options more fully and help you to make the best decision.
So, that’s the difference between term life insurance and permanent life insurance. I hope you now feel more well-informed and are now able to make a better decision about which type of insurance is right for you.