When it comes to securing a financial safety net for your loved ones for later, in the event of your death, buying life insurance is a great solution. You don’t want to leave your family with any undue burden. Life insurance proceeds can go a long way to cover funeral costs, college tuition, mortgage payments, taxes, outstanding debts and other expenses. Term life insurance and permanent insurance are the two main types of life insurance. The big question is: Which of the options will suffice for your family? Here is some useful bit of information to help you arrive at the answer.
The most basic and easily understood type of life insurance is term insurance. It is designed to provide coverage for death protection for a specified “term,” and pays a benefit with no cash value only if you die. There are several different types of term insurance, including annual renewable term, return of premium, mortgage term, decreasing term, modified term and level term-the most popular choice.
Advantages of Term Insurance
- It is the most affordable form of life insurance that you can purchase, that allows you to buy what you need and still enjoy a substantial death benefit.
- It is the ideal solution for covering temporary obligations like mortgage, or tuition in the event of your death.
- You can “lock-in” rates for 1, 5, 10, 15, 20, 25 or 30 years with level term life policies depending on your need.
- Most policies allow you to exchange your term life policy for a more permanent policy if you take advantage of the conversion option.
Disadvantages of Term Insurance
- Term premiums increase at each renewal.
- It will become cost prohibitive at some point in the future.
- It has not cash value/builds no equity
Permanent Life Insurance
This kind of insurance provides lifelong protection, as well as the ability to accumulate cash value on a tax-deferred basis, where no taxes are paid on any earnings as long as the policy remains active. Whole life, universal life and variable life are examples of permanent life insurance.
Advantages of Permanent Life Insurance
- The policy features an investment component, allowing you to invest in appropriate investment and retirement vehicles.
- It offers the ability to cash in the policy for the value amount.
- Premiums remain the same for the length of the insurance without any increases, but could also be flexible.
- A death benefit is guaranteed.
Disadvantages of Permanent Life Insurance
- The biggest downside is that it is far more expensive than term insurance.
- It is inappropriate for short-term expenses.
- Required premium levels could make it hard to purchase adequate protection.
Deciding whether permanent life insurance or term insurance will suffice for your family depends on your needs. If you are looking for a policy that is short-term and affordable, but offers substantial death benefit and “lock in” rates, then term insurance is what you need. If long-term coverage is more appropriate for your family, or you want to grow an investment within a policy, or one that offers a guaranteed death benefit, permanent life insurance will suffice. You may find that having both could also work in your favor. It is best to weigh your options before choosing a life insurance plan.
About AEGON Life
Launched in July 2008 with pan-India operations, AEGON Life Insurance Company Limited has a vision to be the most recommended new age life insurance company. As a joint venture between AEGON – world’s leading financial services and Bennett, Coleman & Company – India’s leading media house, AEGON Life Insurance adopts the power of global expertise to facilitate a direct to customer approach, leveraging digital platforms to bring transparentsolutions, and to prioritize customer’s needs. Our product portfolio includes term life insurance plan, pension plans, unit-linked insurance plans (ULIPs), health insurance plans, child education plans, and more.