Term or Permanent Life Insurance – Which is Best for You?

If you’ve decided that you want to take out a life insurance policy to safeguard your loved ones in the event of your death, you want to be sure that you’ve made the right decision about which type of policy to buy.

Of course, your ultimate decision will depend on several factors, from how long you want the policy to last, how much you want to pay, and whether you’re happy for the policy to simply pay out a death benefit or whether you also want to use it as an investment tool.

The Differences Between Term and Permanent Contracts

While there are many different types on the market, all types can be categorised as either term life insurance where, as the name suggests, the policy lasts for a specific number of years but will only pay out if you die before the policy expires and permanent life policies which cover you for your entire life and will always pay out a guaranteed death benefit. But which type will be the best option for you? We take a quick look at the pros and cons of each type of coverage – but, of course, you should always consult a financial advisor to help you to assess your situation and make the final decision.

The Pros and Cons of Permanent Insurance

Several different types of cover come under the umbrella of permanent policies; however, the most common, the whole life policy, typically lasts until your death providing you have paid your premiums.

  • Pros:
    • It covers you for your whole life.
    • Premiums remain the same throughout the life of the policy.
    • You will receive a guaranteed payout on your death.
    • It also acts as a savings plan, building a cash value which can be withdrawn or borrowed against.
    • You can also sell your policy to one of the companies that will buy existing life insurance policies. Of course, you will need to research your options to find out whether this is the best solution for you.
  • Cons:
    • This type of coverage is typically more expensive than term life or other types of permanent policies such as guaranteed universal life.

The Pros and Cons of Term Insurance

With term insurance you opt to cover your life for a specified period of time, so you can choose a policy that will just cover you for a year or one that provides cover for ten, twenty or thirty years or another specific time period.

  • Pros:
    • Premiums are fixed throughout the term and amongst the lowest of all types of policies for the level of cover provided.
    • If you simply need a policy to cover you for a brief period of time, an annual policy is a great option. This kind of policy can be renewed annually.
  • Cons:
    • If you don’t pass away within the timeframe specified in your policy, it will expire, and no payout will be made to your beneficiaries.
    • There is no savings or investment element to this type of policy. It only provides a payout on death.

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