Individual life insurance is primarily designed to protect against the financial loss that the death of a loved one or business partner can create. Life insurance provides a death benefit that can provide much needed income to help support your family, your business, or to send your children to college. Additionally, life insurance offers some tax advantages.
Permanent Life or Term Life?
There are two types of individual life insurance: permanent life insurance and term life insurance. Both permanent and term life insurance offer an income tax free death benefit to the beneficiary(ies). However, there are several general differences:
Permanent Life Insurance
Provides life insurance coverage for the lifetime(s)
of the insured(s).
Pays a company-guaranteed death benefit to your beneficiary(ies), provided sufficient premiums are paid to maintain the policy inforce.
Premiums are generally more expensive than for term life insurance because a portion of the premiums are applied toward your cash value buildup. However, the cost of renewing term insurance can eventually cost you more than the
cost of purchasing permanent life insurance.
The policy owner may access the cash value
through loans or withdrawals. Both loans and withdrawals will reduce the cash value and death benefit. Loans are subject to interest charges.
Under certain circumstances, there may be tax consequences in taking a loan or withdrawal.
Term Life Insurance
Designed to provide life insurance coverage for a specific period of time. To continue coverage after the specified term has elapsed, you may need to reapply for a new insurance policy. At that time,
the insurance company will again consider your health when determining whether to grant you, the insured, the insurance, unless you have an option
to convert to a permanent plan without further evidence of insurability. May not be available after attaining a certain age.
Pays a company-guaranteed death benefit to your beneficiary(ies) only if you die during the specified term the policy is in force, providing the premiums are paid.
Premiums are generally less expensive than for permanent life insurance over a certain time span. However, the cumulative costs of renewing term insurance can exceed the cumulative cost of purchasing permanent life insurance initially.
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