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Do you know the difference between permanent and term life insurance?Life insurance goes by many names, but it comes in two basic forms—permanent and term. Understanding the difference can help you buy what’s best for you.Permanent insurance is protection that can be kept in force for as long as you live. The variations include whole life, universal life and variable life. One important feature of permanent insurance is its "cash value," a sum that increases over the years on a tax-deferred basis. That cash value is always available should you need the money—either as a loan against the policy or as cash surrender value if you cancel the policy. Under the traditional type of whole life policy, both the face amount (the death benefit) and the premium (the amount you pay) are fixed at the time you buy your policy. Under most forms of universal life insurance, you may pay premiums at any time, in virtually any amount, subject to certain minimums. You can also change the amount of insurance more easily than with traditional policies. Unlike lifelong permanent insurance, term insurance is written for a specific period of one year, five years or more. Policies often may be renewed, usually up to a maximum age of 65 or 70, but premiums are based on age and increase at each renewal. "Convertible" term policies may be exchanged for permanent insurance without a medical examination, but at a higher premium. Term insurance has no cash value, so you cannot take out a loan on a policy, and there are no residual rights in the policy if it is canceled. However, term insurance is initially cheaper than other types of policies for the same amount of protection. Permanent insurance often is recommended as the core of an insurance program, but term insurance may be a useful supplement for young families needing large amounts of insurance protection. Term and permanent insurance are both valuable, but they fulfill different needs. Your independent insurance agent can help you choose the best coverage for your own personal needs.
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