Magazine article VFW Magazine

Choosing Term or Permanent Life Insurance

Magazine article VFW Magazine

Choosing Term or Permanent Life Insurance

Article excerpt

Few people who have shopped for, or purchased, life insurance have escaped this debate. The reality is there is not a simple answer because life insurance is not a simple product. And the wrong kind of life insurance can do more damage to your financial plans than just about any other financial product today.

The first and most important decision you must make when buying life insurance is: term, permanent or a combination of both? Both term and permanent insurance use the same mortality tables for calculating the cost of insurance. However, the premiums for term insurance are substantially lower than those for permanent insurance.

The reason for the price difference is that term programs might expire without paying out. Permanent programs will always pay out eventually.

There are many forms of term coverage available: annual renewable, levelterm and return of premium are just a few.

* Annual renewable term (ART)

is the simplest form of term life. In this form, the premium is paid for one year of coverage, but the policy is guaranteed to be continued each year for a given period of years. This period varies from 10 to 30 years, or occasionally to age 95. As the insured ages, the premiums increase with each renewal period, eventually becoming financially unviable as the rates would eventually exceed the cost of a permanent policy.

* Level-term insurance programs guarantee a level premium for a given period of years. The most common terms are 10,15, 20 and 30 years. …

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