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.
- 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.
- 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.
- 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.
- 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