YOU ASK:

Term vs. permanent life insurance – which should I choose if I am looking for long-term life insurance?

WE ANSWER:

In order to make the right choice of life insurance, you need to ask yourself a very fundamental question: "Exactly how long do I need life coverage for?" Depending on the answer, the best solution for you can be either a permanent or a term life insurance policy.

Of course, there are many variations of both types of policies.

Permanent life insurance providing lifetime coverage, can have fixed level premiums, but some types allow you to be more flexible and vary the premium or change the death benefit.

Term life policies only provide coverage for as long as one needs it, but you can renew it once it expires or you can convert to cash-value policy without evidence of insurability.

Permanent policies are generally more expensive. Yet, in the long run they can prove cheaper than a term policy whose starting premium rates are very low, but increase at every renewal date. Permanent life insurance has a savings component, called cash value, which allows for a substantial sum to build up if the policy has been in force for a period of 15-20 years. Term life insurance does not provide this feature. Cash-value insurance provides guaranteed lifetime protection plus the possibility to receive living benefits, whereas term life insurance only pays the death proceeds if the insured dies within the policy term.

So far, as illustrated, the comparison is in favor of permanent life insurance. Therefore, if you need protection for life or for a period of over twenty years, this is probably the best choice for you. However, not everybody can afford the high premiums, and hefty management and commission fees, which is why many young people end up inadequately insured. It is also a mistake to purchase cash-value insurance solely because of the investment prospects.

Term life insurance is not only affordable, but also highly recommended if you need insurance for a shorter period of time, such as up to 15 years. It provides guaranteed protection, expense costs are low and don't forget that you can always convert to a permanent life policy if, along the way, you discover you need permanent coverage.

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