One of my most asked questions is “why should I spend more money for a permanent policy when term is so inexpensive?”

My answer is always the same. “Why don’t we find out what you need and what your goals are, and then decide on term vs permanent.” Many people think only of the death benefit, and not what the goal is. They should both be looked at as “tools”, and not just a death benefit.

Term is just what it sounds like, you pay the same amount of premium (monthly, semi-annually, annually, etc.) for the life of the term (a term of 5yrs, a term of 10yrs, a term of 20yrs, etc.) The problem is that when the “term” is completed i.e. at the end of 5yrs, the premium amount also goes up! If you still need the insurance, you could end up paying significantly more. A good use of this tool might be to pay off a mortgage if the insured dies. One client purchased a 20yr term to cover his 20yr mortgage, and then reduced the face amount of the policy regularly as he paid down his mortgage. Some of the insurers have added “living benefits” to their term policies. This allows you to utilize some of the death benefit to pay for long term care, chronic care, other medical issues or terminal diagnosis.

Permanent policies are much more complex and come in a host of variations. You might purchase Whole Life, Universal Life, Indexed Universal Life, etc. These are all a type of permanent policy. Once the need/goal is defined, then you can decide on the type and structure of the policy. Are you replacing a pension? Do you want to cover the difference between Social Security payments if your spouse passes earlier than expected, as household expenses may not change significantly? Maybe you want to look at creating income at a later date (tax free retirement planning).

I cannot stress enough, define your needs and goals FIRST. Then decide on the type and structure of the policy!