Difference between term life insurance and permanent policies?
Question by nonfrump: Difference between term life insurance and permanent policies?
My insurance company is offering a term conversion credit if I switch to permanent insurance. What’s in it for them, and what is permanent insurance? Whole life? Any benefits for me to change?
Best answer:
Answer by w8nc
Term insurance is coverage for a limited time (5, 10, 15, 20, 30 years, etc.). After the term, the insurance no longer exists. Premiums paid are not usually returned either. Because of the term obligation, it is usually much cheaper.
Permanent insurance (“Whole Life”) is what it says it is… permanent. This insurance is guaranteed to pay a benefit as long as premiums are paid on time. This is more like an investment, because you get your money back and earn money on it. Although its return feature is like an investment don’t think of it as an investment. It’s main purpose is not to make money, but to provide a death benefit if needed. For this type of insurance, you get back whatever you put into it – “the cash value”- if you don’t use the death benefit and decide to cash the policy out. This insurance is much more expensive because of the guaranteed death benefit.
My advice, weigh your options. If you want to have a death benefit forever, whole life is the way to go. Make sure you have level premiums though, because at older ages your premium could climb drastically if it is not set as level. Also, coverting now might be a good idea because you won’t have to prove insurability (go through underwriting) in the future. However, if you only need the insurance to cover a term obligation (i.e. 30 year mortgage), keep the term insurance. It’s much cheaper.
Good luck – I hope this info helps.
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Tags: Between, Difference, Insurance, Life, permanent, Policies, term
both are same i think
Term insurance is a temporary protection in which you can afford the right amount of protection. It is inexpensive, so it gives you more room to save your money in the right savings vehicle (such as CDs, money markets, mutual funds, 401k, or IRAs). Premiums remain level for certain period of years (such as 10, 15, 20, 25, or 30 years). Premiums will go up after the initial period, but that won’t happen in 10-30 years. Over time, your needs will change. In 10-30 years, you really don’t know your situation. You may not need as much coverage, you may exchange the term policy to a decreasing term policy or a shorter term, or you don’t need life insurance anymore. The reason why you should pick term is because you may need lots of coverage now and it doesn’t cost you that much compare to whole life.
Because premiums are low, the only reason the insurance company want to convert it to permanent coverage such as whole life is to make more profits. Check out what the new premium will be when you convert it from term to whole life. Don’t believe that its going to build tax-deferred savings for you because you may lose it all when you die or when you want to use it, you have to borrow it and pay loan interest on it or pay surrender fees.
If none of your insurance such as car, health, and home owner insurance don’t have a savings plan in it, why should your life insurance have it? It makes no sense at all. When I ask “Why can’t you keep the life insurance and savings apart?”, no body can answer that question because they know it doesn’t make sense and its a bad idea to put them together.
i used to sell life insurance. what all the people answered up (definitions) are pretty accurate. my best advice for you is that a permanent policy is much better than term. however, there are 3 different types of permanent life insurances: whole life, universal life, and variable universal life. my recommendation is to NOT buy into a whole life policy because there are more underlying fees involved and grows a lot slower in cash value. the best bet is a universal life because the fees are less and the growth of your cash value is more consistent and decent and safe.
Permanent insurance is whole life, or one of it’s varients. The ONLY benefit to you, to change, is that, well, you lock in the whole life rate NOW, when it’s lower than it will be in 20 years from now.
Permanent insurance costs way, way, way WAY more than term insurance. People will say, “cash value! savings plan!” but it doesn’t build anywhere NEAR as much value as you pay into it – you can build cash value faster in a mayo jar under your bed, putting the difference in there.
Rather than looking at the product, seeing if you want it, what you SHOULD do, is ask yourself – what do I want my life insurance to do for me? and see if the product fits. 99 times out of 100, term insurance fits needs better, at a MUCH lower cost, than whole life.
The benefit to the company – well, they get A LOT more money from you!!
Term insurance is isurance which is in effect only during a certain period of time (so long as you pay the premiums), term does not build cash value over time.
A permanant policy (which can consist of Universal Life, Whole Life, etc) does build cash value over time. These policies typically expire at age 99 or 100. One of the benefits of these policies is that you can borrow the cash that has built up withing the policy if you need to (though you do have to pay it back into the policy to keep on it’s projected cash building track).
One way to look at is this: In term insurance you are making the bet that you will die within the policy term and the company is betting you won’t. In the permanant policies you both accept that you’re going to die and so the policy is building cash value for when you are expected to expire (if you die earlier the cash gets cashed out and the remaining face ammount of the policy is paid out same as if it were from a term policy).
Whats in it for the insurance company is that they get to charge a higher premium for permanant insurance than term (and thus more commision to the agent).
I found a good explanation
we got a quote on both.. my husband was concerned tat if anything happened to him that the mortgage, cars, etc. would be paid off and I wouldn’t have to worry about them. The agent was trying to sell us on the whole life policy.. WOW the premium diff was way more than term. Yes there was a cash value.. But it was our cash!!!
I’ve got sense enough to save my own money, we could afford the larger premium, but it didn’t make sense, when we could do a term policy for BOTH of us, and the premium was still less that the whole life for just my husband.
So, we did the 2 term policies, I got in touch with the gy who handles out investments,, every 6 months I sent him a check for the difference in premium that I had put in the savings account. He made us a lot more money than the insurance company ever would have.