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What kind of Life Insurance should I buy? (Permanent vs. Term)

There are many kinds of life insurance, but they generally fall into two categories: term insurance and permanent insurance.

Term insurance is designed to meet temporary needs. It provides protection for a specific period of time (the "term") and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage. The most common term policies provide 20 year coverage. Term insurance offers the greatest amount of coverage for the lowest premium.

In contrast, permanent insurance provides lifelong protection. As long as you pay the premiumsand no loans, withdrawals or surrenders are taken, the full face amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep over a long period of time. Permanent insurance accumulates cash value on a tax-deferred basis. This cash can be used to bail you out of a tight financial squeeze, or supplement a college education or provide additional retirement funds. The downside is the initial premiums are considerably higher than what you would pay for a term policy with the same coverage amount.

Term vs. Permanent

  Term Permanent
Length of coverage Only for a specified period of time Until age 95 or greater
Premiums Lower then permanent Initially higher then term but over time about the same
Cash value None Accumulates over time increasing your face value and tax deferred
Key Advantage Highest death benefit for the lowest price Life long protection and tax deferred savings

Features unique to Permanent Insurance

Access to Cash Value

A policy cash value can be surrender in part or in-full. This cash can be used for bills, college education or supplemental retirement income. You can also borrow the cash value without the hassle of credit checks or other banking restrictions.

Premium Flexibility

You can stop paying premiums and allow you cash value keep your coverage in forced for a period of time.

Guaranteed Coverage

As long as you pay your premiums, you have coverage for life. You'll never have to fill out another application or answer any medical questions, regardless of your age.

Stable Premiums

Premiums will remain constant over your lifetime unlike term insurance where it increases every new contract period.

Tax Advantage

Your cash value accumulates on a tax-deferred basis.

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