Life Insurance - Term Vs. PermanentSubmitted by FSB Premier Wealth Management on September 12th, 2014
Last week, I shared my personal experience with life insurance. In light of September being Life Insurance Awareness Month, and because I believe it is a critical component of a well-constructed financial plan, I will be providing more tips on life insurance through the month of September. This week, I will be discussing term vs. permanent life insurance.
Term insurance policies provide life insurance for a specific period of time. If you die during the coverage period, your beneficiary will receive the policy’s death benefit value. Term policies are typically available for periods of 10 to 30 years and may, in some cases, be renewed until you reach age 95. With most term insurance policies, both the premium and the amount of coverage remain level for a specific period of time. Because there is a known policy termination date, the cost of term insurance is usually cheaper than permanent insurance, if all other factors are the same.
Permanent insurance policies offer protection for your entire life, regardless of your health, provided you pay the premium to keep the policy in force. As you pay your premiums, a portion of each payment is placed in the cash value account. During the early years of the policy, the cash value contribution is a large portion of each premium payment. As you get older, and the true cost of your insurance increases, the portion of your premium payment devoted to the cash value decreases. The cash value continues to grow--tax deferred--as long as the policy is in force. You can borrow against the cash value, but unpaid policy loans will reduce the death benefit that your beneficiary will receive. If you surrender the policy before you die (i.e., cancel your coverage), you'll be entitled to receive the cash value, minus any loans and surrender charges. There are many types of permanent life insurance, but a few examples are whole life and universal life.
The death benefit for both term and permanent insurance is generally tax-free. Also, policy loans are generally tax-free. You should consult a qualified tax professional to discuss the full tax ramifications of life insurance.
Have you reviewed your life insurance plan lately? Are you sure that you have the right type and the right amount? If not, contact one of the financial advisors at FSB Premier today for a complimentary review of your life insurance plan.
Jordan Alborn, CFP®
VP/Financial Advisor - FSB Premier Wealth Management, Inc.
This material is provided for general information and educational purposes based upon publically available information from sources believed to be reliable. Any opinions expressed are my own, which are derived from my experience and background as a financial advisor. They do not represent those of my employer, FSB Premier Wealth Management, Inc., or any of its affiliates including Farmers State Bank.