Ever since the idea of term life insurance came to the mind of
man
term life insurance vs permanent has been the center
of active and thought provoking debate. Term insurance is
without question cheaper than permanent life insurance but when
compared with the value built into the latter people have
varying ideas as to which is best. What about the cash values
and dividends you get from permanent policies? Do you just
ignore these? How can cash values and dividends be used to
offset cost? Questions worth answering aren't they?
The ever constant innovation of life insurance policies make it
more and more difficult to come to a consensus. Term life
insurance vs permanent will continue to provoke the thoughts of
anyone considering a life insurance purchase. Because term is
simplest I will discuss that one first then I will get to the
complexities of permanent life insurance and it's varying
alternatives.
The Advantages Of Term Life Insurance
What life insurance companies have attempted to do with term
life insurance, and have been fairly successful at doing it, is
to strip the life insurance policy of as much of the front end
load as possible. They have been more successful in doing this
with some policies than with others. Let us take the increasing
premium term policy for example. The lower premiums in the
younger years result from the fact that the applicant is less
likely to die within a given period, the term period, than an
older person. Term life insurance is life insurance in it's
simplest form taking into consideration mortality based on
actual experience.
If we were to examine a decreasing term life insurance policy
the decreasing annual premium reflects the decrease in the death
benefit each year, also bearing in mind the fact that the
insured is getting older each year. People like the way this is
done because they believe that at no time they are paying more
than for the term life insurance they actually want.
Advantages Of Whole Life Insurance
Comparing term life insurance vs permanent we notice that the
whole life insurance premium is loaded up front. The life
insurance company take most of the cost to issue a whole life
policy in the first few years. There are clerical costs, medical
costs if the policy is large enough or if they are dealing with
an impaired risk, and of course agents commissions etc. If the
costs are less than anticipated, and they usually are, they
return that portion of unused premium. This is called a cash
value. This cash value earn dividends which, if left with the
company, accumulate interest. There are alternate dividend
options that you may elect.
If you were to deduct the cash value of a life insurance policy
plus the dividend after 20 years from the amount you paid in
premiums you would see that the policy cost nothing over that
period. But, hold on. We have to consider what those dollars,
over and above the cost of term life insurance, would have been
doing had they not been in the whole life policy. What rate of
interest would be available.
The advocates of buying term when examining term life insurance
vs permanent contend that the money would be earning the maximum
over that 20 year period. On the other hand, the advocates for
permanent life insurance assume that the extra premium would not
be saved or invested. There is truth in both arguments but,
because each person is different, we cannot come to a definite
conclusion as to which is best. If you can afford to buy any
policy you choose , do your comparisons for yourself and go with
your gut.
About the author:
For more than 40 years Donald has been known for his extensive
knowledge of the life insurance business. He has represented
some of the largest and best life insurance companies in the
United States as well as Canada. His advice is invaluable.
Donald's website is:
http://www.lifeinsurancehub.net
