Every year, it seems new variations of term and permanent life insurance hit the market.
In the past couple years, we’ve seen hybrid term/UL products, and several term and permanent options that include long term care benefits.
But when making life insurance comparisons in 2016, the key question remains:
That’s the big question many Americans will be pondering this year, so we are going to provide 2016 life insurance comparisons for these two types of life insurance policies to help you decide.
It’s a tough choice and a big investment because both types of this life insurance are long term investments. You want the best coverage for your family and to find the most suitable product for your individual needs.
Quick Comparison Guide for Permanent and Term Insurance:
- Term vs. Permanent Life Insurance Differences
- Term vs. Permanent Life Insurance Needs
- Term vs. Permanent Life Insurance Cost
Okay, first off, the main difference between the two types of life insurance in 2016 can be broken down as follows:
- Term Life Insurance, which comes in 5 varieties, contrary to what many people think, has 2 basic characteristics. It is bought for periods of time (reason why it is called term) anywhere from 1, 5, 10, 15, 20, 25, 30 year periods and is age specific such as 55 or 65 for example. Term solely provides Death Benefits.
- Permanent life insurance, which consists of Whole Life and Universal Life is purchased for life (some policies specify an age such as age 120). Unlike Term Life Insurance Permanent Life Insurance provides a Cash value accumulation component along with Death benefits.
Now, the majority of Americans should really be considering Term life insurance instead of Permanent because, in the majority of cases, it will cover all your needs.
Many company agents push Whole life emphasizing the cash value accumulation component as a good means to save for your retirement.
Here, at Huntley Wealth we don’t really believe that Permanent life insurance is a very good investment.
Well, for several very solid reasons. The first year all of your premiums connected to your Permanent policy go to paying your agent’s commissions. Term policy payments do contain smaller agent commissions, but they ultimately make no difference to you as your estate will reap the benefits of your policy regardless of when your death occurs.
Secondly, in the first few years of a permanent policy, you retain only a nominal figure in the cash value accumulation account. In the early years of your policy, most of the premiums go to cover the death benefits and administrative fees to manage the policy. This does not occur in a Term Life Policy.
If you surrender a Permanent policy in the first 10 years, you are not going to make much money, in fact you will barely break even.
You would be much better off investing the savings from purchasing a Term policy in a tax advantaged vehicle that will provide stronger returns. This is an important difference to keep in mind when you are deciding what policy to buy.
Now, you have to ask yourself why you want life insurance. Although, it might sound like we’re suggesting that you should completely avoid Permanent insurance – we’re not. There are some very valid reasons for “some Americans” to buy a Permanent policy, but this reasons are probably not right for you.
Who should buy Term Life Insurance?
If the reasons you are buying life insurance include some or all of the following – then we suggest Term life insurance:
• Income Replacement
• Cover Personal Debts
• Business Purposes
• Mortgage or Rent
• Leave a Legacy
• Funeral and Burial Expenses
Why? Because in most instances you will only want life insurance to cover a specific period of time. Once the kids move out and graduate from college and you pay down your mortgage the need for life insurance decreases dramatically.
If you have been consistently investing money into a 401 (k), IRA and other investment vehicles such as mutual funds, government bonds etc, then you should have more than enough saved to be “self insured” by the time you are ready to retire. Simply put, there should be no need for life insurance by the time you reach later life.
Also, keep in mind that you can buy term policies which are renewable or convertible which means that even if you require the term policy beyond what you projected – you are essentially covered and won’t have to undergo another medical exam if you need to renew your policy.
Bottom Line: Buy a term policy but choose the length of the term, the amount of death benefits and the type of term policy wisely.
Who Should Buy Permanent Life Insurance?
Permanent life insurance is something we suggest is best used in a very limited number of situations.
Permanent policies are suitable for those in the following situations:
• You are in the higher income brackets
• You have an estate that’s valued more than $5.45 million (2016) and are concerned about federal and state estate taxes.
• You earn enough that you have max’ed out your 401 (k) or IRA and need alternative tax shelters.
Or, alternatively, a Permanent policy is best purchased by businesses to fund:
We strongly advise that anyone considering a permanent policy consult a knowledgeable financial advisor.
This one’s a biggie!
The cost comparison between buying a term policy and a permanent policy for the same amount of death benefits comparison is enormous!
Let’s take the case of a 35 year old male who wants $500,000 in death benefits coverage. He plans on retiring in 30 years at age 65, and wants the life insurance to cover that period of time.
If this 35 year old non-smoking male, in relatively good health, were to buy a 30 year term policy with $500,000 in coverage it would cost roughly $39.00 per month, or a total of $14.04 for the full 30 years.
On the other hand, if he were to buy a permanent policy such as a Whole life policy with $500,000 in death benefits, it would cost at least $250 per month or a total of $90,000 for the same 30 year period!
Here’s the question – If the savings difference between the 2 policies works out to $211 per month, and you don’t really reap much in the way of earnings from the cash value accumulation for the first 10 years, would you not be better off investing that $211 per month and earning 6-8% annually? Or, would you prefer waiting 10 years for the permanent policy to really start to pay any dividends?
Let’s say there is a lay off 10 years down the road, which policy holder is going to be in the better position? The guy who has been investing $211 per month (a total of $25,320 for 10 years and earning 6-8% per annum) or the guy who shelled out $30,000 for a Whole life policy where most of the money went to commissions, fees and death benefits. If circumstances are bad enough the Whole Life policy holder may even have to surrender his policy because he could no longer afford it.
This is why we say the average American is better off buying term and investing the difference. If you can imagine any reason whatsoever that might cause you to stop making payments to your permanent policy premiums – buy term!
Life Insurance Comparisons 2016 – What Life Insurance Should I Buy?
Here at Huntley Wealth, we don’t peddle one type of policy over another – we advise, guide and tell you the pros and cons of both Term and Permanent life insurance. It’s important you get the advice you need for your particular financial situation.
Don’t let some company agent or call center agent mislead you into buying life insurance which isn’t right for you. Call us first for the best life insurance quotes 2016. This is one of the biggest investments you are going to make, so do it right and let our independent life insurance agents here at Huntley Wealth set you on the right path.
Call us today at 888-603-2876 for all your life insurance advice because we can help!
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