Deciding you need life insurance is only the first step. The next question is what kind of policy fits your family and budget. Life insurance generally falls into two broad categories, term and permanent, and understanding the difference can make the decision much easier.
What Makes Term Insurance Different
Term life insurance is sometimes called pure protection. You pay a premium, and in exchange the insurer promises to pay a death benefit if you pass away while the policy is active.
Coverage lasts for a set stretch of time. When that period ends, you can often renew, but the premium usually rises because your age, and the statistical likelihood of a claim, has increased.
Because term policies do not build any cash value, they tend to cost less than permanent policies, especially when you are younger.
Annual Renewable Term
With annual renewable term, sometimes shortened to YRT or ART, the death benefit stays the same each year, but the premium climbs annually to reflect your increasing age.
This can be a reasonable option if you need coverage for just a short while, but costs can add up quickly if you keep renewing year after year.
Decreasing Term Insurance
Decreasing term is a variation where the premium stays level, but the death benefit gradually shrinks over time.
This structure is often paired with a mortgage or other debt that is being paid down, since the amount of coverage you need tends to decrease as the loan balance drops.
Level Term Policies
Many people prefer a level term policy, which locks in both the premium and the death benefit for a set number of years, commonly five, ten, fifteen, twenty or thirty.
A longer guarantee period usually means a higher starting premium, but that premium will not change for the length of the term.
If you expect to need coverage for many years, a level term policy can be a more predictable and often more economical choice than renewing annual term coverage over and over.
How Permanent Insurance Differs
Permanent, or cash value, insurance is designed for people with an ongoing or indefinite need for coverage. It combines a death benefit with a savings-like cash value component.
Premiums start out noticeably higher than term rates, but the policy may build cash value over time, and some policies allow borrowing against that value under certain conditions.
Rules, features and tax treatment of cash value and policy loans can vary and change, so it is worth confirming current details before relying on them.
Choosing between term and permanent life insurance, and deciding how much coverage and what term length make sense, depends on your personal and family situation. This article is general information, not tax, legal or financial advice. The team at Flynn Insurance Agency in Kings Park is glad to sit down with you, walk through your options, and help you think through what fits your household's needs.
This article is general information, not legal, tax or financial advice. Coverage depends on the terms, conditions and exclusions of each policy. Talk with a licensed agent about your situation.
