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Insurance Life Permanent - Permanent Life Insurance - How It is Different From Term Life Insurance

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If you are shopping for life insurance, you have likely been bombarded with a lot of jargon about different types of insurance and different insurance companies. At its simplest, there are two major types of life insurance. Term life insurance, which many people choose, offers coverage at fixed rate for a limited period of time. Permanent life insurance is a type of life insurance where the policy lasts for the life of the insured and the payout is guaranteed. Depending on your age and needs, you would choose one, or a combination of both of these, insurances if you are looking for a life insurance policy.

Term life insurance is the original form of life insurance. Rather than accumulating value, term life insurance works like automobile or homeowner’s insurance. If the insured passes their beneficiaries will receive money, so long as the payments are up to date and the contract has not expired. Once the term is up, payment amounts are no longer guaranteed and a new contract needs to be negotiated. Further, there is no cash value associated with term life insurance. Terms can last as little as 5 years or as much as 50 years. Term life insurance is typically used as a safeguard to protect loved ones in the event of an untimely accident.

Permanent life insurance is slightly different. One major difference between term and permanent life insurance is that permanent life insurance accrues cash value. Rather than paying a guaranteed amount over an agreed upon term, those using permanent life insurance pay into life insurance until it has reached the final value. This form of life insurance is offered in a couple different ways. Originally, permanent life insurance was offered as whole life, or cash surrender life insurance. Whole life insurance offers a constant premium with a guaranteed cash accumulation and payout. Universal life insurance, another permanent type, was developed in response to consumer demand for more flexibility. Although universal life insurance allows flexibility in the timing and amount of premiums, it still retains the fixed investment performance of whole life insurance. Both universal and whole life insurance offer the option to permanently withdraw cash from your policy. For consumers who are interested in even more flexibility, variable life insurance is a form of permanent life insurance that allows consumers a flexible premium structure and a choice in where the money is invested. Although this option is more flexible, it does come for more risk for the consumer as their investment choices are not guaranteed returns.

Typically, term life insurance is used to cover potential expenses on the eve of someone’s death. As such, individuals usually choose coverage that would pay off mortgages, consumer debt, and allow financial security for any dependents. In contrast, permanent life insurance is more of an investment. Because the payout is guaranteed, consumers can leave their loved ones a guaranteed legacy. The guarantee does come with a price. Permanent life insurance is much more costly than term life insurance, frequently costing as much as times the amount for the same coverage. Many advocate purchasing term life insurance and investing the savings in higher interest bearing investments. However, others argue that life insurance is a safe bet as the results are guaranteed. Additionally, permanent life insurance can be viewed as “back-up” funds, as it is possible to borrow against the money that has accrued.

Purchasing life insurance is a good safety measure for any individual or couple. The decision on whether you choose permanent or term life insurance, or a combination of both, will depend on your own life circumstances, including age, health, number and age of dependents, and your current financial status. Regardless of what you choose, your decisions to purchase insurance will give you some peace of mind.

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