Q. What are the advantages and disadvantages of term and permanent insurance?

A. The following points can help you determine which type of insurance best suits your needs.

Term Insurance

Advantages

Initial premiums generally are lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest.

It’s good for covering needs that will disappear in time, such as mortgages or car loans.

Disadvantages

Premiums increase as you grow older.

Coverage may terminate at the end of the term or become too expensive to continue.

The policy generally doesn’t offer cash value or paid-up insurance.

Permanent Insurance

Advantages

As long as the premiums are paid, protection is guaranteed for life.

Premium costs can be fixed or flexible to meet personal financial needs.

The policy accumulates a cash value against which you can borrow. (Loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.) You can borrow against the policy’s cash value to pay premiums or use the cash value to provide paid-up insurance.

The policy’s cash value can be surrendered — in total or in part — for cash or converted into an annuity. (An annuity is an insurance product that provides an income for a person’s lifetime or a specified period.)

A Provision or “rider” can be added to a policy that gives you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.

Disadvantages

Required premium levels may make it hard to buy enough protection.

It may be more costly than term insurance if you don’t keep it long enough.

Published: Aug 31, 2005