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If you are not sure what type of insurance would be best for your needs, four basic features should be considered:
DEATH BENEFIT
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Term life insurance provides a death benefit for a stated period of time
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Permanent life insurance provides a death benefit for as long as you live
PREMIUM
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Permanent life insurance premiums are generally level and payable for life
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Term life insurance premiums will increase over time and are payable for a specific period of time
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Term life insurance premiums generally increase at each renewal
CASH VALUE
Guaranteed Cash Values:
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Term life insurance does not accumulate cash values
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Permanent life insurance accumulates guaranteed cash values
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The growth in cash values is tax-deferred under current federal income tax law
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You may borrow against the cash value as a policy loan at the current policy loan interest rate
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Borrowed amounts reduce the death benefit and cash surrender value
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Amounts withdrawn that exceed the cost basis of the policy are federally income taxable
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Dividends:
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Term life insurance does not earn dividends
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Permanent life insurance policies may be eligible for dividends
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Dividends are a return of premium and are based on actual mortality, expense, and investment experience of the company
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Dividends are not guaranteed, since actual experience is not known in advance
DURATION OF COVERAGE
If your need for life insurance is to provide protection for a specific period of time, like providing protection for educational expenses in the event of your premature death, then you may want to consider term insurance. Other examples of temporary needs are:
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Use of death benefit to pay off home mortgage
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Use of death benefit to pay off an automobile loan
If your need for life insurance is long term, such as paying bills at death or providing money for your loved ones, then you may want to consider permanent insurance. Other examples of permanent needs are:
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Use of death benefit to pay final expenses
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Use of death benefit to provide money for a favorite charity
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Use of death benefit to pay estate taxes
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Fund a business buy/sell agreement or provide key person protection
Note: The longer period of time that insurance protection is needed, the more consideration you should give to permanent life insurance.
The purchase of life insurance involves one of the most important decisions you will make. When it comes to choosing life insurance, you need to look for a policy with benefits and premiums that match your present and future needs and ability to pay. The correct product for your situation may be a combination of permanent and term insurance, since most people have a need for both temporary and lifetime protection.
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