Knowing you need life insurance is one thing. Understanding what kind of life insurance you need is a completely different matter. Various factors and needs will determine whether term life insurance or permanent life insurance is right for you. Texan Insurance is here to make sure you understand your options and help you pick the perfect life insurance policy for you.
Types of Life Insurance
The two main types of life insurance are term and permanent. But within these two categories, there are various types of policies to choose from.
Common types of life insurance include:
- Term life insurance.
- Whole life insurance.
- Universal life insurance.
- Variable life insurance.
- Simplified issue life insurance.
- Guaranteed issue life insurance.
- Group life insurance.
Type of life insurance | Term | Permanent |
Term life insurance | ✓ | |
Whole life insurance | ✓ | |
Universal life insurance | ✓ | |
Variable life insurance | ✓ | |
Simplified issue life insurance | ✓ | ✓ |
Guaranteed issue life insurance | ✓ | ✓ |
Group life insurance | ✓ | ✓ |
We won’t get into all the different categories of life insurance now, but you can learn more by calling a Texan Agent or clicking here.
The Difference Between Term Life and Permanent Insurance
Term Life Insurance – life insurance that covers a specific time frame, is typically sold in lengths of one, five, 10, 15, 20, 25, or 30 years. Coverage amounts vary depending on the policy but can go into the millions. Annual policies can be useful if you have short-term debts or need coverage for a brief time.
Permanent Insurance – frequently called cash-value life insurance, these policies last your entire life and allow you to save funds in a “cash value” account associated with the policy. Your premiums stay the same, you get a guaranteed rate of return on the policy’s cash value, and the death benefit amount doesn’t change.
There are pros and cons to both types of insurances.
Term Life Insurance Pros:
- Flexibility in terms of the cost of the policy and when the plan ends
- Competitive prices for most plans
- The plan can often be renewed without a medical physical
Term Life Insurance Cons:
- If you outlive your policy, your beneficiaries won’t receive a payout.
Permanent Insurance Pros:
- Some federal tax benefits
- The policy’s value continuously grows
- Life long protection
- Better long-term flexibility
- Investment options
Permanent Insurance Cons:
- More expensive
The reality is that term life insurance is going to be better for some people, while others do better with a permanent life insurance policy.
Which is the best choice?
As you’ve seen both policies have their pros and cons. Here’s how they compare in other important areas.
Simplicity – Term life is the essence of simplicity — pay the premium, get covered for the term. On the other hand, permanent insurance plans can get complicated. There are non-trivial rules governing things like the size of your cash value savings versus the policy death benefit, and the repayment of policy loans.
Pricing – Because they are so simple, term life policies can be easily compared based on price. This has led to a very competitive market which has made term life policies less expensive and a rapidly growing commodity.
Permanent life premiums are often a lot more expensive than term life policies. But, there are some great Federal tax benefits connected to owning a permanent insurance policy. The IRS allows you to use the insurance policy to develop a nice source of tax-deferred income. Another benefit is that many banks allow you to borrow money against the insurance policy.
Flexibility – Many term life policies are both “renewable” and “convertible.” This ensures that you can re-up for another term policy without a medical exam. You can also convert your term life policy into an equivalent permanent policy from the same carrier, should this make sense during the term of the policy. Not all term life policies offer these features, so be sure to ask for them specifically if you want them. (In particular, be sure you know what they mean by “renewable.”)
Permanent policies only work out when they are held for life. Once you’re in, it’s tough to get out without a little financial pain.
Age – If you’re older, you should set your sights on a permanent policy. Term life insurance gets more expensive as we age. On top of that, the companies that issue term life insurance policies are reluctant to take on senior citizens. The company wants to collect premiums, they don’t want to pay out, and they worry that senior policyholders simply won’t live long enough for the policy to mature. Sometimes the insurance company will make an exception if you submit to a medical physical, but even then the requirements are often too strict for the average senior to pass.
Tax Advantage – Both policies offer some tax advantages. The fundamental savings advantage of permanent insurance savings is tax-sheltered earnings. But, permanent investment options are often limited. Term life policies typically offer index funds, but not necessarily a broad-market index fund, and rarely the option to buy individual stocks. You can learn more about their tax advantages by calling a Texan Agent.
Contact Texan Insurance Today!
Rather than trying to figure out which type of life insurance best suits your needs, you should get in contact with Texan Insurance. Not only does Texan Insurance have a relationship with several different life insurance companies, but we also work closely with you to determine which type of life insurance is the best bet for your lifestyle, budget, and long-term goals.