TUESDAY, JANUARY 10, 2012
Many insurance agents will tell you that the right type of life insurance can be described up in a single word: term.
However, it is important to understand the differences of the options available to you before you make your decisions. The difference between term and permanent life insurance is similar to the difference between buying and leasing a car. Term insurance is like a lease, you purchase death benefits for a specified period --usually 5, 10 or 20 years. When the period is over, it's like turning in the leased car, your policy is up and you walk away or renew. Most term policies allow you to renew only up to a certain age, usually around 75 and then you are ineligible for coverage.
 Permanent insurance, on the other hand, is like buying the car you plan to drive forever, it stays in force as long as you live and will pay out when you die, regardless of your age.
Sounds simple, right? Not so fast.
Permanent life insurance is a term policy combined with an investment or a savings component. The investment component might be stocks or bonds which can build cash value which you can borrow against while you’re still living for things such as college or other expenses. Both policies require a monthly payment but permanent life insurance is generally more expensive and more risky. If you’re interested in investing, it is generally best to not choose an insurance policy as an investment venture. These types of “insurance investments usually come with high fees and higher commissions.
Permanent Life Insurance options can be a good choice for individuals who plan to be in the policy for more than 10 years, are over the age of 40, or in situations where they are unable to get a term policy for various circumstances. In addition, some choose to use permanent life in their estate planning by setting up an insurance trust that will pay their estate taxes from the proceeds of the policy. On the other hand, people take advantage of the lower costs of term insurance and take care of the savings and investment options in their own ways through separate savings accounts.
An expert agent can tell you if your policy will ever become a decent investment, but it is important to keep in mind if a permanent life insurance policy is really necessary. Although term life insurance generally becomes unavailable in your 70’s, by that time you will most likely be retired and your spouse won’t need insurance to replace your income and your children will be self-sufficient and living on their own.
For these reasons, most people agree that term insurance is usually the best bet for people looking for basic insurance protection to take care of their loved ones in the event they die prematurely. The exceptions to this rule may be parents who have a disabled child who will never be able to support himself even as an adult or a wealthy individual who expects to leave a large estate and uses the investment portion of their insurance to help their heirs pay the estate taxes due.
Whether you choose term or permanent, it’s worth it to talk about both options with your expert insurance agent to find the method that works best for you.
If you have questions about Louisville life insurance, the knowledgeable agents at Claude Reynolds Insurance are here to help you understand your options and choose the right type of life insurance for you.
By Matt Reynolds - Google+
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