Advantages and Disadvantages of Term and Permanent Insurance ...


Term Insurance

Advantages:

  • Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest.

  • It's good for covering specific needs that will disappear in time, such as mortgages or car loans.

Disadvantages:

  • Premiums increase as you grow older.

  • Coverage may terminate at the end of the term or may become too expensive to continue.

  • Generally, the policy doesn't offer cash value or paid-up insurance.


Permanent Insurance

Advantages:

  • As long as the necessary premiums are paid, protection is guaranteed for your entire life.

  • Premium costs can be fixed or flexible to meet personal financial needs.

  • Policy accumulates a cash value that you can borrow against. (Loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.) You can borrow against the policy's cash value to provide paid-up insurance.

  • The policy's cash value can be surrendered - in total or in part - for cash or converted into an annuity. (An annuity is an insurance product that provides an income for a person's lifetime or for a specific period of time.)

  • A provision or "rider" can be added to a policy that gives you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.

Disadvantages:

  • Required premium levels may make it hard to buy enough protection.

  • It may be more costly than term insurance if you don't keep it long enough.


 

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Last modified: February 06, 2015