Vermont Retirement Planners, LLC

54 Highland Avenue
Manchester Center, VT 05255
nick@vtretirement.com
(802) 367-3958

87 North Main St.
Rutland, VT 05701
nick@vtretirement.com
(802) 772-7945

Insurance Read Time: 4 min

Term vs. Permanent Life Insurance

According to industry experts, most people don't have enough life insurance. The American Council of Life Insurers recently reported that average coverage equals $183,780, which is equivalent to approximately 3.5 years in terms of income replacement (with the median income being $54,132 in 2022, according to the Bureau of Labor Statistics). That's only half the recommended 7-year threshold.1,2

Furthermore, almost half of consumers said that their households would be in immediate or near-immediate financial trouble if the primary wage earner died today.3

When considering life insurance, one of the most important factors to understand is the difference between term and permanent insurance. Here’s an inside look at both.

Term and Perm

Term or Perm?

Term life insurance is temporary; it provides a death benefit for a specific term, such as 10, 20, or 30 years. Unlike other types of life insurance, it does not accumulate a cash value. If the policyholder dies during that term, their beneficiaries receive the benefit from the policy. When the contract ends, so does the coverage.

This limited term leads to term life insurance’s main advantage: price. Generally, term life insurance costs less than permanent life insurance, especially if the purchaser is younger. This has the potential to free up funds for other household expenses.

Permanent insurance remains in place as long as the policyholder makes payments. In addition, permanent policies are designed to build up “cash value,” a cash reserve that accumulates with the policy. Typically, this cash reserve pays a modest rate of return. However, the policyholder has limited access to the funds.

Which Should You Choose?

Term life insurance can be designed to provide protection against upcoming expenses, such as putting children through college. Permanent life insurance, on the other hand, can be more useful for covering long-term financial needs, such as estate planning.

Many people find that they have a combination of short- and long-term needs. In such circumstances, it may be prudent to have both types: a basic level of permanent life insurance supplemented by a term policy. A review of your situation may help determine what type of life insurance is appropriate.

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Term or Perm?

In 2021 people purchased more permanent life insurance policies than term life insurance policies. However, term policies account for approximately 74% of the face amount of the policies issued.3

Source: ACLI.gov, 2022

1. ACLI.com, 2022
2. BLS.gov, 2022
3. LIMRA.com, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Gift Giving: Spend Less, Enjoy More

Gift Giving: Spend Less, Enjoy More

Stressed about the cost of holiday gift giving? You’re not alone.

Four Great, Unexpected Places to Raise a Family

Four Great, Unexpected Places to Raise a Family

Here are 4 great, and sometimes unexpected, places to raise a family.

Success in Their Own Words

Success in Their Own Words

Why freedom, not money, is the mark of financial success and other surprising insights from professional representatives.

 

Have A Question About This Topic?







Thank you! Oops!

Your Financial Path Forward in the Midst of Mental Illness

Losing a job is never easy, even under normal circumstances. Losing a job or needing to take extended time off of work due to mental illness, however, comes with its own unique set of pressures to navigate

Whole Life Insurance Can Be an Asset For Balance

Even if you didn’t grow up on a farm, you’ve heard, “Don’t put all your eggs in one basket.”

Funding Your Future Health Care Needs

A little planning now can go a long way to help take care of yourself in the future.

View all articles

A Look at Systematic Withdrawals

This calculator may help you estimate how long funds may last given regular withdrawals.

Historical Inflation

This calculator shows how inflation over the years has impacted purchasing power.

Home Mortgage Deduction

Use this calculator to assess the potential benefits of a home mortgage deduction.

View all calculators

An Inside Look at Retirement Living

A number of questions and concerns need to be addressed to help you better prepare for retirement living.

Principles of Preserving Wealth

How federal estate taxes work, plus estate management documents and tactics.

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

View all presentations

The Richest Man in Babylon

In good times and bad, consistently saving a percentage of your income is a sound financial practice.

Retirement and Quality of Life

Asking the right questions about how you can save money for retirement without sacrificing your quality of life.

Retirement Plan Detectives

A couple become Retirement Plan Detectives, searching records from old employers.

View all videos