Which life insurance plan is best?
Between term and permanent, choose one that’s right for you
Life insurance comes in two flavours — term and permanent — and both are designed to help provide your loved ones with financial security in case you die.
Insurance is a must if you have a spouse or children who depend on your income to get by. But which type of insurance is right for you?
Term life insurance
The most common type of life insurance.
Provides protection for a specific number of years — typically in 10- or 20-year terms — in exchange for a regular fixed payment.
The death benefit gets paid out to the beneficiary if the policyholder dies within the period of coverage.
It’s renewable when the term expires, but premiums will increase based on your age, gender and health.
It’s best suited for most people due to its flexibility and affordability. I’m a 37-yearold male non-smoker and a quote for a $500,000 20-year term life policy says it would cost me between $40 and $45 per month.
Term life insurance provides protection for a specific number of years, while permanent remains in place until death
Permanent Life Insurance
An insurance policy that remains in place until death.
It combines term life with an investment component. A portion of your premiums goes toward the insurance coverage, while the rest goes into the investment plan.
Premiums generally stay the same for the duration of the policy.
Payments can initially be much higher than with a term life policy, but premiums might actually become lower than term life in your later years.
Acash value portion of the plan can be refunded to you in the event you cancel the policy before your death. Keep in mind that you (or more specifically, your beneficiaries) give up the death benefit when you cancel the policy.
A permanent policy with a $500,000 death benefit might cost between $200 and $250 per month for a 37-year-old male non-smoker. The Verdict Ideally, you’ll want enough life insurance to pay off your mortgage and other debts while still providing your beneficiaries — those dependent on you — with income for a period of time. A good rule to start with is a policy that covers roughly 10 times your income.
For the vast majority of people, term life insurance is the least ex- pensive way to purchase a substantial death benefit that meets those needs.
However, just because term insurance is cheaper doesn’t mean it’s al- ways the best choice. For instance, permanent insurance may be more appropriate if you want to hold life insurance well into old age to help settle estate taxes, or to leave a lump sum to an heir. Buying permanent insurance now is likely to be cheaper in the long run than buying term insurance and renewing it every time the term expires.