Keith Williams Insurance Associates

The number one question our office receives regarding life insurance is; what is the difference between Permanent Life and Term Life insurance? If you looked into purchasing life insurance, chances are you have faced this same dilemma of what type of life insurance may be right for you. Here are a few facts about each one.

Term Life insurance can be purchased for periods of one to thirty years. Term insurance is less expensive than permanent life because it is insurance coverage only. If you were to pass away during the policy period, the policy would pay the face value to your beneficiaries. This type of policy is commonly used to provide income replacement, debt repayment, or children’s college in the event of an untimely death of the insured. The premiums you pay are fixed for a certain period of time and are guaranteed. Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.

Permanent Life insurance operates differently than your traditional term policy. The premiums are more expensive and a portion of the premiums go into a savings component known as the policy’s ‘cash value’. These types of policies are commonly known as ‘cash value insurance’. There are several different types of permanent life insurance, but the most common are whole life and universal life.

Whole Life insurance has fixed premiums for the life of the policy and you can keep this policy your entire life as long as you pay the premiums. This type of policy is used for small face amounts for individuals, burial plans, and children’s life insurance policies. It accumulates cash value but should never be purchased for that reason.

Universal Life insurance has flexible premiums which allow you to buy a slightly higher face amount for a lower premium for a while. In almost all cases, the premium will increase. This policy also has a cash value feature but as you become older, it costs more to insure yourself, which means you will probably receive lower dividends going towards your cash value and an increase in premiums as you age. Historically, this type of policy has not been good for the consumer.

Universal life insurance is often marketed by insurance agents as investment, savings, college funding, and supplemental retirement. Universal life insurance is a very poor choice for any of the above mentioned needs because there is a very low rate of return for dollars invested. This is a poor choice also because as you build cash value in this policy, many people will exercise the loan provision built into the policy. What this means is they withdraw funds that have accumulated due to an emergency or some other need. You will have to pay taxes on these withdrawals unless you pay the money back immediately. You also have surrender charges for any withdrawals within the first ten years of the effective date with most policies. Always beware of this type of policy and do your homework thoroughly before purchasing.

This is a brief overview of different types of life insurance policies and as you can probably tell, in most cases I will recommend Term Life insurance because it enables you to purchase a greater death benefit at a much lower cost. Essentially, you can buy more for less.

I hope this has given you a little insight into life insurance. Protecting your financial future is very important. So please take this opportunity to reevaluate your needs and make sure you have the right type of coverage and the adequate amount for your family. Also, encourage your family and friends to do the same. As always, if you ever have any questions or concerns, please feel free to contact us.

Keith