If you've been shopping for life insurance, chances are you have discovered that there is a price difference between term life insurance rates compared to the rates of a permanent/cash value life insurance policy.
Permanent life insurance policies come in many forms such as whole life and universal life. Just like a term life policy, their main purpose is to protect your loved ones against a sudden loss of financial support if you were to die unexpectedly. So if they both do the same thing, why should you dole out the extra money for a permanent/cash value life insurance policy?
The fact is, while both types of policies pay out a death benefit. Depending on your needs there may be some additional considerations for choosing a permanent life insurance policy over term life. Here are three.
Permanent life insurance is designed to last you for life.
Some needs are permanent - such as final expenses, funeral/burial costs, estate liquidity, while others can be more temporary. Only permanent insurance is guaranteed to be there when you need it (assuming you pay the premiums). The primary reason why term life insurance rates are typically less, is that term is considered a temporary policy and at some point in time will become nonrenewable.
Permanent life insurance premiums are fixed for life, term life insurance rates are not.
While the premium for permanent life may be higher initially while you are young, it will never increase as long as there are no policy changes and premiums are paid on time. That's a huge benefit as you get older and not having to face the possibility of your term insurance premium increasing beyond your ability to pay (quite possibly at a time when you'll need your insurance the most).
Permanent life insurance has the potential to build cash value.
Permanent life insurance policies can earn guaranteed cash value in addition to the death benefit protection. This cash value can grow, and be used as the basis for a loan from the policy, used to pay premiums if necessary, or taken as a cash payment in the event you cancel the policy. It's important to note that outstanding loans accrue interest and lower the policy death benefit while cancelling a policy may result in surrender charges. Always discuss the implications of accessing your cash value with your carrier or agent before acting.
For more information on the different types of life insurance available, visit the Protective Learning Center.
* As long as required premiums are timely made.