The best life insurance policy for a consumer to own is the one that is in force the day they die. Having said that there is no such thing as the best or perfect policy. So, we are going to dissect and discuss the advantages of each. We recommend you consult a financial professional to discuss the best short and long-term solution for your specific needs.
Term Insurance – What is it?
Let’s start with term insurance as it is a simple product and easy to explain. Term Life Insurance is a policy that is designed to stay in force for a set number of years. The most common types are 10, 15 20 and 30 year term. Typically these policies have level premiums meaning they are fixed for the life of the policy; however, some carriers do offer annually renewable term which mean the premiums rise slightly each year as the insured gets older.
Term insurance is typically a low cost solution in the life space, especially the younger and healthier you are. It is very effective if your life insurance goal is to secure as much death benefit at the lowest premium policy. Term insurance is a great tool for young families and business owners, especially if they are able to obtain the waiver premium option and accelerated benefit riders. Please remember term insurance expires. It has no cash accumulation associated with the policy and can be cost prohibitive after renewal dates.
Permanent Insurance – What is it?
Permanent Insurance is a long term play for owning insurance. It is typically much more expensive than term insurance in the earlier years of the contract, however, it may end up paying you at some point. Permanent life insurance is meant to last your entire life. Currently mortality tables have these contracts running until an individual’s age of 121. The premiums of these policies can be guaranteed for the life time and if the agent is telling you the premiums are flexible, make sure you have a very good understanding of the product you are buying. The Death Benefit are guaranteed for these policies.
The last distinguishing characteristic of a whole life policy is cash value. While each type of permanent insurance has a different way of compounding these monies it should be clear that the policy has a cash component. Traditionally, you are able to access the cash value income tax and capital gains tax-free. If you do find yourself owning permanent life insurance, many mutual companies have distributed dividends for decades now. The dividends are a reflection of your overpayment of premium as well as interest accrued on the monies.
Permanent life insurance can solve many different financial objectives as it forces the consumer to save money. It also, enjoys some tax-advantages as well as some living benefits like the waiver of premium and accelerated benefit riders. Given the dividends that might accrue over time and the cash value it is most likely this contract will pay you.
The Verdict
Many experts recommend owning a combination of the plans. It is our suggestion to consult your financial professional and read several articles from trusted sources before making a final decision. This is one decision that it is better to get it right than get it done.
Registered Representative. Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/ SIPC. Investment Advisor Representative. Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. New South Wealth Management and Cambridge are not affiliated.