Term vs. Permanent Life Insurance:
Which is Right for You?

On May 2, the insurance industry celebrated National Life Insurance Day, marking the anniversary of the first life insurance policy written in the United States. At Hibbs Insurance, we’re honoring the date by examining a primary point of coverage: the difference between term and permanent life insurance policies.

 

Term Life Insurance

 

Term life insurance is the option with the lowest premiums, so it also offers a more basic level of coverage. As a policyholder, you can purchase this type of insurance for a set amount of time, and you’ll pay either a fixed rate or a rate that increases in established intervals. The policy pays a death benefit, but only if you die before the expiration date. It becomes invalid the moment that deadline passes.

 

Unfortunately, you must reapply for term insurance after a policy expires, and that’s risky. You may be uninsurable upon reapplication, and then, you can’t obtain more coverage. Your premiums might also rise when you reapply because you will have aged since your previous policy purchase.

 

Permanent Life Insurance

 

Permanent Life Insurance typically requires higher premiums but comes with several perks.

 

Once a carrier approves your policy, it can never cancel the coverage, no matter how bad your health may get. The company will also never raise the premium, like it might for some term policies. So, although permanent life insurance may seem more expensive at first, it may not be in the long run.

 

This type of insurance also usually includes “cash value,” which involves an interest-earning savings account that grows until it equals the death benefit. You can use this money before passing away for various needs, such as a house down payment, college tuition, and medical bills. Although, you need to keep in mind that using your cash value will reduce your death benefit.

 

Which should you choose?

 

Your current situation will determine which life insurance option is best for you and your family. If you can afford it, permanent life insurance offers the most stable coverage with a cash value bonus. However, term insurance is more affordable and a good option for those with tighter budgets.

 

Fortunately, many term life insurance policies can convert to permanent coverage within a certain timeframe. So, if needed, you can start with term insurance and switch to permanent when your financial situation changes.

 

If you have any questions about these policy types—or life insurance in general—give us a call. We can tell you everything you need to know and help you find the right coverage to suit your needs.