Although people buy life insurance for different reasons, the main reason life insurance is purchased is to help pay for funeral expenses when a loved one dies. Purchasing life insurance can be a big deal, especially if you’re not sure of what’s available or of what each type offers. The two most common types of life insurance are term life insurance and permanent life insurance. Term life and permanent life are very different types of insurance. Here is an overview of the two.
What is Term Life Insurance?
Term life insurance is a type of life insurance that is in place for a certain term. Term life insurance policies can be for 10, 15, 20, 25 or 30 years. The policy offers a death benefit, which is paid to the beneficiaries when the insured dies. The amount of the premium is based on the amount of the death benefit. The premiums usually remain the same throughout the term of the policy.
Term life insurance is the most affordable type of life insurance. Forbes reports that term life insurance is usually the best investment. The policy stays in effect as long as the premiums are paid. Term life insurance doesn’t offer a cash benefit. Term life insurance has the following advantages.
- Affordable premiums
- Can be renewed at the end of the term
- Can be purchased as temporary coverage
- Best coverage for the money
- Death benefits tax-free
What is Permanent Life Insurance?
Permanent life insurance, also known as whole life insurance, is a type of life insurance that covers an individual their entire life. While it’s more expensive than term life, permanent life insurance offers a cash benefit and collects interest. Some people purchase permanent life insurance with the intent of using it as a savings account and cashing it in in the future.
The insured an also take out loans against the policy. Permanent life insurance is the most expensive type of life insurance. Permanent life insurance has the following advantages.
- Builds cash value
- Loan options
- Collects interest
- Premiums guaranteed never to increase
- Cash value and death benefits tax-free
Is One Better Than the Other?
Choosing term life insurance vs. permanent life insurance does not involve choosing the one that’s the best policy but more which one is the best for that particular individual. U.S. News & World Report states there are pros and cons of both policies and indicates that what might work for one may not necessarily be right for another.
For someone who has the extra cash, permanent life insurance would be a good choice. While the cash benefits offered with permanent life insurance make it appealing, Consumer Reports feels that better and cheaper options might be investing in 401k or IRA accounts, especially if retirement funds is the ultimate goal.
Regardless of which policy is chosen, both offer the security of knowing that funeral expenses for a loved one will not be an added burden to families who have already lost a loved one.