Hardly anyone debates over the necessity for life insurance today, but there are more than a few pundits and experts that disagree on how people should go about obtaining life insurance and which type of insurance they should invest in. In fact, the debate over those topics could go on endlessly without everyone settling into an agreement any time soon.
Whether you are a supporter of term life insurance, striving to lower your premiums at any cost, or you are just entering into the realm of life insurance for the first time, there are a few “must-knows” you should be aware of before you make your final decision.
To help you wade through the jungle that is life insurance, let’s discuss five things you need to know right now about permanent coverage.
1 – Permanent Offers Too Much Coverage
The overall goal of life insurance is to protect your family and cover them financially should anything detrimental occur to you and/or your health. There are a number of options available, each complete with their own set of unique pros and cons. For instance, permanent insurance covers you for your entire life and also has a savings option built in.
On the other hand, basic term insurance provides you with coverage for a certain fixed number of years at a much lower cost. While there is no cash value and no way to get money back at the end, you are provided with all of the coverage that you need for the time specified and the policy will have done its basic job.
While permanent insurance seems like the safest bet, it is often far more insurance than you actually need. With basic term insurance, you can maintain the basic coverage at least until your house is paid off and your kids are grown-up and finished school, so there is no real need for additional life insurance anymore once its term has expired.
2 – Life Insurance Isn’t Always the Best Investment
Many people decide upon permanent life coverage thanks to the double whammy it provides in terms of providing savings and protection. However, in truth, it can be a much better idea to look for protection and savings through separate investments instead of asking your insurance to do both.
With the money you save from opting for term life insurance instead, you can then turn around and invest that money on your own and potentially acquire substantially more savings in the long run. Add that onto that the fact that many people skimp out on certain benefits because of the high price attached to permanent insurance, in the end you might end up with better coverage with term insurance regardless and with a lower premium.
3 – At Times, Permanent is your Best Bet
An additional big bonus related to permanent coverage is the fact that the savings you build up are not taxed until you decide to withdraw that money from the plan. There is another option that provides a way whereby you can actually avoid those taxes through a few separate stipulations, but that is a discussion for another day. Thus, if you are bringing in a larger income, and have maxed out all of your other tax-deferred savings, permanent life insurance could still be your best option.
4 – The Difference is in the Type
Essentially there are three different kinds of permanent life insurance that you can choose from: universal, variable, and traditional whole. The main difference between these three types are: universal insurance gives you the option to increase and decrease your premiums, variable gives you options in terms of how you want your savings invested, and whole offers guaranteed growth and comes with a premium that is fixed.
With the three varying types, you really have to delve much more deeply into the different features before you can be confident of selecting which kind is optimal for you and your personal lifestyle and finances. It is a very good idea to connect directly with an insurance expert, and to read up on as much information as you can, before narrowing down to your best choice.
5 – Changing your Mind is Expensive
What some people do not realize is the fact that it can take up to 10 years before a permanent policy has enough cash value to make up for all the money that you have paid into it. Even worse, the fine print might stipulate that if you opt out of the plan early you may face extra financial penalties and charges from your provider.
This makes it easy to see why it is so important to shop around, weigh all of your options, and make an informed and educated choice, no matter what you end up choosing: permanent or basic term life insurance.