What are the 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.l
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.l Coverage may
terminate at the end of the term or may become too expensive to
continue.l 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.l Premium costs can be fixed or
flexible to meet personal financial needs.l 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 pay
premiums or use the 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 life-time or for a
specific period of time.)l 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.l It may be more costly than term insurance if you
don’t keep it long enough.