Term or Permanent Life Insurance: Which Should You Buy?

There is rarely a good reason to pay the high price of permanent life insurance. The big difference between term and “perm” isn’t protection, it’s cost.

By Mary Pollman – SelectQuote

The point of life insurance, for most people, is to provide a substitute estate in case their life isn’t long enough to permit them to create one the regular way – by spending 50 or 60 years earning and investing. If life is cut short, life insurance steps in and compensates.

If you have a young family and a fledgling career, it’s quite a while before you’re going to have a comfortable bank account and a healthy and hearty investment portfolio. You need life insurance. Or maybe you’re making nice progress on that investment portfolio, but you have three kids in college simultaneously. If something happens to you, your assets may not quite get all three of them to graduation. So you, too, need life insurance.

A temporary versus a permanent need for life insurance
In either of these cases, your need for life insurance protection is temporary. In fact, in most people’s lives, the need for life insurance is temporary. Many continue to own expensive permanent policies, paying hefty premiums year after year, long after the policies have outlived their usefulness – long after their loved ones have ceased to need protection, or after their assets have grown to the point where they [the assets] can do all the protecting that’s necessary.
There are certainly cases where permanent life insurance is appropriate. Let’s say you have a child with Down Syndrome. That child will need your support long after you’re gone. It’s hard to be sure your assets alone will be adequate. Your need for life insurance could definitely qualify as permanent. Or you may want to buy a policy to benefit a charity. In that case, you have to buy permanent life insurance so there’s no (or almost no) chance you can outlive the policy.

However, in many, many cases, people can foresee an end to their need for life insurance, can estimate how many more years they’ll need it. If that’s the case for you, term is probably the way to go.

Getting the most life insurance for the money
If the goal is maximizing the payout to your family for the price you pay, term almost always beats permanent. Bottom line, you should approach your research on life insurance with the assumption that your need is probably temporary and that term will be the better fit. Prove to yourself it’s not before you pay the high price of permanent life insurance.

About the author. Mary Pollman, CLU, has been writing about life insurance, long-term care insurance and annuities for more than 20 years. She has contributed to insurance publications, websites, consumer product literature and agent training. Mary held senior management positions in communications and marketing with two life insurance companies. She is an editorial advisor to SelectQuote.

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