One of the smartest financial moves that a person could possibly make is investing in life insurance, particularly if he does so at a point in his life during which he is healthy. Ask any financial planner, and he’ll tell you that life insurance is especially vital when a spouse and children are part of your life’s picture. One of the toughest aspects of choosing a life insurance policy is determining which type of life insurance you ought to get. Jim Barker of Barker Insurance Services is a personal financial representative who believes that life insurance is a crucial investment, and as such, he feels that people need to understand their options when choosing a policy.
There are two types of life insurance that a person may purchase — term life insurance and permanent life insurance. Term life insurance is the more basic type of policy. With term life insurance, a person can purchase coverage for a specific amount of time, such as a5- or 10-year window. If a person passes away before the term is over, then his beneficiaries will receive the financial benefit as established and stated in the policy. However, if a person lives beyond the term, then his policy runs out, and he gets no money or benefits upon the policy’s expiration (other than getting to stay alive). Some term life insurance policies do offer the option of extending for another coverage period, but such options are subject to company-imposed restrictions and limitations.
Permanent life insurance, on the other hand, involves writing policies that never expire. As long as a person continues to pay his life insurance premiums, his policy will remain in effect. Of course, permanent life insurance premiums are generally more expensive than term life premiums, and they are highly based on a person’s age and health at the time in which the policy is purchased. The good thing about permanent life insurance premiums is that they tend to stay the same over time, whereas the premiums for term life insurance are more likely to increase.
Permanent life insurance varies greatly from term life insurance in that premiums paid into a permanent policy are invested to add cash value to the policy’s “bank account.” If a person passes away, then his beneficiaries will receive a payout as allowed for in the policy. However, a person does not need to pass away in order to benefit from permanent life insurance; one can borrow against the balance in his permanent life insurance account to pay for items such as college and home repairs. In fact, the greatest appeal of permanent life insurance is that a person does not have to pass away in order to receive any benefits. If a person lives, then he can get back at least some, if not more than, the amount he spent on premiums by either cashing in the policy or borrowing against it.
It can be difficult to know when to purchase a term life insurance policy versus a permanent life policy. Generally speaking, if a person plans to keep the policy for less than 10 years, then term life insurance is probably the way to go. On the other hand, if a person knows that he’ll want his policy for 20 years or more, then permanent life insurance is likely the best option. The problem, however, arises when the time period in which a person wants to keep the policy falls somewhere in between. For this reason, it’s important to have a trusted personal financial representative on hand who can help you weigh the pros of cons of each life insurance option. Whether you choose term life insurance or permanent life insurance, one thing’s for sure: The sooner you get that policy in place, the better off you’ll be.
