Magazine article Drug Topics

Term versus Permanent Life Insurance: Your Choice

Magazine article Drug Topics

Term versus Permanent Life Insurance: Your Choice

Article excerpt


Q: What is the difference between term and permanent life insurance?

A: There are two main ways you can protect your family's lifestyle through the use of life insurance. Should anything happen to you, either strategy will provide the needed death benefit, which is the main reason behind acquiring life insurance, while providing for your dependents.

The term -insurance strategy is the most common and easiest to understand. The insured individual, after qualifying, pays a scheduled premium for a specific number of years. Term policies typically last from 5 to 30 years. If the insured dies within the term of the contract, the specified death benefit is paid income-tax-free (under current law) to the beneficiary of the contract, usually a spouse or a dependent. If the insured outlives the terms of the contact, the contract expires and all the premiums paid to the insurance company are lost. There is no equity built up in a term policy.

Some companies now offer "return of premium" contracts that actually give you all or a portion of your premium dollars back if you outlive the policy. These plans are typically more expensive, however, than traditional term products. Many term products these days are convertible to permanent products as well.

Permanent life insurance is more expensive. After qualifying for the insurance, the insured will pay a higher premium than for a term product, but will now build equity inside the contract, referred to as "cash value." There are various types of permanent life insurance. One type is Whole Life, which provides death -benefit protection designed to cover one's entire life. Other variations include Adjustable Life or Universal Life, and give the policy owner the freedom to adjust his or her premium up or down as circumstances change. These adjustments in combination with actual crediting rates may cause the length of time the death-benefit protection is in place to vary.

Although more complicated to understand, the long-term benefits of permanent life insurance can outweigh those of term policies. A major benefit to the permanent insurance strategy is the tax- deferred growth of the cash value. The cash value inside a life-insurance contract grows tax- deferred and can be accessed any time through loans or withdrawals. …

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