Having a loved one die can be one of the hardest moments in our lives. Death provides many challenges for the loved ones. The mental strain caused by the terrible grief can be horrible to bare. Often, this is coupled with a significant financial strain for the immediate family. A funeral in the U.S., as of 2014, costs upwards of $7,000! That’s in addition to any outstanding bills, debt that needs to be paid off, and taxes that need be paid.
That is where life insurance comes into play. Let’s learn about the different options for life insurance.
Term Life Insurance
The most frequently selected life insurance plan is called ”term life insurance.” This type of life insurance covers the life of a person for a set period of time, or term. These terms can range anywhere from 5 years to 35 years, with some lasting even longer. Should the life the policy covers end during the term, a set amount of money is paid to the beneficiary or beneficiaries. When the term expires, the policy holder must renegotiate with the insurance company for another term, or coverage will stop.
Permanent Life Insurance
Similar to term life insurance, permanent life insurance pays the beneficiary or beneficiaries if the covered life ends, but unlike term life insurance, permanent insurance doesn’t have a set end-date for the policy. Instead, unless the policy is canceled, it covers the life until the bitter end. It is also usually coupled with other benefits, such as tax-free savings plans or investment plans.
The Key Differences in the Two
The primary difference between the two types of insurance is that with term life insurance, the insurance company isn’t making quite as much of a gamble. They are usually offered to people who are deemed unlikely to perish in the term limit, where permanent insurance is almost surely to require payment to the beneficiary at the end.
For this reason, permanent life insurance is significantly more expensive. Looking at quotes for similar polices will tell you that the yearly payments for permanent life insurance are often as much as ten times as much as that of similar coverage from a term life insurance policy.
So Which Should I Choose?
According to Forbes, if you make less than $250,000 annually, and have under $1,000,000 in assets, term life insurance is likely the answer for you. Not only does it cost significantly less money, but it allows you to readjust the policy to your life situation at the end of the term, or even go to a different company at that point.