In our last blog, we talked about why it is so important for you to have life insurance. While it wasn’t our intention to scare you, not having all the information can be even more frightening. And so, in today’s blog, we’re going to break the topic up into more manageable pieces. You’ll find that when you truly understand something, it’s not nearly as scary anymore. By the time you finish reading this article, your anxiety about life insurance should be put to rest. (No pun intended.)
Let’s talk about the two main types: “term” and “permanent.”
What is “Term” Life Insurance?
Term life insurance is what is sounds like. You literally buy a policy where the payment is guaranteed to stay the same for a specific “term,” or rather, a length of time. This term can be anywhere from one year to twenty years (sometimes even 30 years). After that “term” is over, the price goes up every year (like a stair step) and eventual becomes unaffordable. That's because you're getting to an age where death is more and more likely and the cost to insure that risk goes up. Of course, If you pass away within that “term” timeframe, your loved ones will receive the full amount.
While the downside is that you may outlive that “term” and the cost now goes up every year to a point you can no longer afford to keep the policy in place, this term cost is much lower than permanent life insurance, and it is often more appealing for that fact alone. So, the question then becomes, how long of a term should you sign up for? You need to ask yourself, “How long do I plan to live? What if I live longer than expected? What is my plan…long or short? How many years should my term life insurance cover?
Here’s where the tricky part can be. Term life insurance tends to work on a bit of a sliding scale. When you’re younger, the cost is generally cheaper. So the good news is, you can actually save money by signing up for a much longer period. If you wait until you’re older and start to have health problems, it will be much more expensive to sign up. Therefore, if term life insurance is the route you want to go, do it as soon as possible and for as long as possible.
What is “Permanent” Life Insurance?
Permanent life insurance is the more stable, long-term plan when compared to term life insurance. Instead of specifying an amount of time and playing the odds as though you were in Vegas, if “funded” properly, you can “set it & forget-it.” And if you’re falling on hard times, you sometimes can skip payments, make higher payments to catch up or save more, take a loan against the cash value or even have the option of cashing out and taking cash value that has built up.
Obviously, this long-term (stable) product can be a much more appealing prospect over term life. If you outlive the term and eventually cancel it (due to costs increasing) you may feel like you simply lost money paid over the years. However, it’s exactly for this reason that permanent life insurance is often more expensive. In essence you're paying into a policy that builds cash value, pays you an interest rate on that money and keeps the payment stable. But if funded correctly through the years, your policy can offer retirement options, cash options and a tax free way of building a nest egg…all while covering you and protecting your family in case of your demise.
What Kind of Life Insurance Should I buy?
Whether you should buy term life insurance or permanent life insurance depends on where you are in, well, life. Talk to us about what kind of life insurance you need for your particular situation. We will never try to over-insure you, but we will guide to you make sure you are aware of possible issues that can be prevented by having the correct coverage. Reach out today.
Since 1875, Freeman & Sherburne has been serving the insurance needs of clients by coupling a small-town approach with the most current tools to serve you best. We are licensed in Virginia, Maryland and Washington D.C.
As independent professionals, we provide all our clients with insurance solutions from a wide range of companies and programs. We make insurance simple, straightforward and economical. Reach out today and experience the way our agency works.