Term or Permanent Life Insurance: Which Will Meet Your Needs?

A Insurance Article Contributed by Deepak Cutting

Term or Permanent Life Insurance - Which Will Meet Your Needs?

This is, in fact a futile debate since both types of life insurance policies are designed to cater to different needs and one policy cannot completely substitute the need for the other. Whereas the term policy is designed to provide protection to people at that stage in their lives when they need protection only for a given period of time.

It provides a definite benefit of coverage in respect of death but no cash value and the premium will increase at definite intervals, although they are considerably lower than those for permanent life insurance. Term insurance policy is ideal to cover periods in your life when the need for secure income is going to be high e.g. when the family is growing. It can also cater to the financial needs during a period when the income is likely to fall short of expenditure in that period.

In such time periods, term life insurance allows the protection of the death benefit, without upsetting your budget greatly. There is also the option to convert term policies to whole life policy in future.

Disadvantages in Term Life Insurance;

· Term insurance is like renting a house. On the day you rent that house, you get the full and immediate use of a fully built house. But you must quit the moment the lease terminates, for whatever reason. There is no 'equity' or 'goodwill' that is yours on termination of tenancy.

· You must die in order to benefit or gain from that policy. The benefit of gain on death also expires along with the term of that insurance policy. There is no 'residual benefit'.

· In case your term policy is not convertible, there is a real danger of your becoming uninsurable by the time the term cover expires, leaving you without insurance. Even when the insurance policy is convertible, there are issues like timely application to convert etc., that pose the risk of your being left with no insurance cover.

· Since the premium due increases with age in term insurance, the premium will have gone up each time the term policy is renewed. In your twenties the term insurance will appear much cheaper than permanent life insurance but at forty five, the reverse is true. If you opted for the permanent life insurance, you pay the same premium at forty-five as you paid in your twenties. That is why the conversion option is so important. Conversion is usually available during the first few years of the term policy, without medical and other tests.

The Value of Permanent Life Insurance;

The cash value life insurance is ideal for the following reasons;

· Cash value life insurance is the long-term protection. Once approved, the protection must continue in most cases provided only if the premium is being paid, regardless of the medical condition of the insured.

· In spite of higher initial premiums, cash value life insurance is cheaper in the long run, in addition to the risk of deterioration in the medical condition of the term policyholder at the time of renewal of term insurance. Some policies have a guaranteed purchase option which allows the policyholder to buy additional cover at specified periods.

· The policy builds cash value. This means that you can borrow for a down payment against that parts of its value that are guaranteed not to expire. As such, it also provides an additional source of funds to meet your immediate requirements.