Differences Between Term Insurance And Permanent Insurance

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Term insurance and permanent insurance both provide coverage in the event of the death of the insured. The difference comes in the amount you pay out in premiums. I think it important that you know why there is a difference between term insurance and permanent insurance costs.

• Term Insurance

  There are several different types of term life insurance policies. For the sake of this discussion you need to see term insurance for what it really is. These policies provide protection for specific periods, thus they are temporary policies.

  You can buy a term policy for 1 year, 5 years, 10 years, 15 years, 20 years, 25 years, 30 years or to age 65. Some carriers even provide term coverage up until age 80 or 90. The point is that these policies are limited as far as how long you can keep them.

  It is important to note that when they go to age 80 or 90 there usually is a premium increase or several increases as you get older. Some premium costs can get quite prohibitive as you get older.

  Some term insurance premiums remain level throughout but the longer the term period the higher the cost. If you choose a 15 year level term policy the annual outlay for this policy will be less than that of the 20 year level term policy but more than that of a 10 year level term life policy.

• Permanent Insurance

  Permanent life insurance usually has a level premium as well as a level death benefit for the rest of your life, even if you live to age 100. Your annual outlay for any permanent policy will be considerably higher than what you pay for any term policy.

  The reason is that the life insurance company carries the risk for a longer period of time. As life insurance costs more as you get older the life insurance carriers build into the premium a much higher cost for their protection.

  They also have a cash value built into the policy which you can take out if you surrender your policy in the future. The cash value is a return of premium. They charged you the high premium for your permanent policy, you went for a few years and you didn't die, your policy provides a cash value which you can get upon the surrender of the policy.

  You may on the other hand take a portion of this cash value in the form of a loan. You pay it back on your own schedule. Any unpaid loan will be deducted from the death benefit upon death.

  If your permanent policy is a participating policy you may also get a dividend in addition to your cash value. Dividends, however, are not guaranteed. They depend on the investment performance of the company and how efficient they have been in keeping down expenses.

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