Is Permanent Life Insurance Right For Me?

You might even be wondering if you should you buy permanent life insurance?

The answer to that question can come down to understanding your options, especially if you’re trying to decide between purchasing term life insurance or permanent coverage.

Once you know the differences and benefits of each, you should be able to make a clear choice if a permanent life insurance policy is best for your situation.

What is permanent life insurance?

Permanent life insurance, it just that – permanent. This type of insurance meant to stay with you your entire life. Life long coverage is not the only advantage of permanent life insurance.

Most permanent life insurance policies can build up a cash value. Cash inside of a permanent policy can accumulate on a tax-deferred or even tax-free basis. So you do not have to die to see benefits from a permanent policy. Over time as the cash value grows you have the opportunity to borrow or withdraw cash from your policy, or even using its cash value as collateral.

People like to build cash value for many reasons, but some of the most common uses are:

  • to help pay for a child’s education
  • generate a stream of tax-free income during retirement
  • or maybe to even start a business.

As you can see the advantages of cash value are endless.

Term vs permanent life insurance

You may be wondering should I buy term or permanent insurance.  Knowing how each works and the pros and cons can help you decide which is right for you. So let’s take a look at each.

Term

While permanent life insurance is life-long,  term insurance covers life insurance needs for only a set period of time or term – typically 10, 15, 20, or 30 years.  After the specified period ends the coverage ends as well.

Why would you want temporary insurance? Let’s say you buy a house and are looking to pay it off in 15 years. In that case, you might buy a 15-year term life insurance to cover just those 15 years. After the mortgage is paid-up, the need to insure against the risk simply disappears. The expense has a set time period, so the insurance you buy does too. You can easily see that term insurance makes sense for a temporary risk.

Another thing to bear in mind is that term life insurance just has a death benefit. This means the amount paid out to the beneficiary is always the face value of the policy. If you buy term life insurance for $250K for example, in the event of the insureds death, then the policy pays out $250K.

Permanent

Permanent life insurance has a death benefit just like term insurance, but permanent life insurance also has something called a cash value that grows tax-deferred. That’s why people sometimes choose permanent insurance – they get to save money in a tax-shelter inside the life insurance. What this cash value is and how it works depends on the type of permanent life insurance policy you buy.

TermPermanant
Temporary CoveragePermanant Coverge
Lower premiumsHigher premiums
No cash valueBuilds cash value
Rent policyOwn policy

Cost of permanent life insurance

Below you can see a chart that compares the cost of permanent life insurance vs. a term policy.

The figures are for illustration purposes only, but they do help to see you how the costs will differ between the two policies. All prices shown in the chart are for a 35-year-old non-smoking male and have a has a death benefit of $250K.

The premium for the term is just $27 a month. Both the permanent policies have a substantially higher premium than the term policy, but you can see each will accumulate cash value.

One of the most significant advantages of permanent coverage is you can not outlive the policy. In a term policy, you run the risk of outliving the policy.

Think about this, if you buy a 30-year term at age 35, and you live to age 65 you will have spent almost $10,000, and then the policy expires worthless and has no value. This does not happen in a permanent plan. At age 65 in both examples, you will have six-figure cash value accounts.