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Life Insurance

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Permanent or Term Insurance: Which makes sense for you?

In a very broad sense, there are two types of life insurance: permanent life insurance and term life insurance.

Permanent life insurance is a type of life insurance that can stay in force for your entire life, as long as you pay your premiums in full. Permanent life insurance usually, but not always, builds cash value for you that you can use for expenses later in life. On the other hand, term life insurance is only in force for a specified amount of time: usually 10, 15, 20 or 30 years. At the end of the term, your coverage expires and you will need to either convert your policy to a permanent life insurance plan (if available) or purchase a new policy for a new term. To counter the drawback of an expiration date, you will find that term life insurance is somewhat less expensive than permanent life insurance.

Which is right for you?

The answer lies with what you’re trying to accomplish by having a life insurance policy. Are you insuring your life so that when you pass away your children will be able to go to college and your spouse will be able to pay off the mortgage?

These are temporary concerns and so a temporary form of life insurance - term life - is best suited to address them. On the other hand, someone who is concerned about providing income to a widow or widower for life, funding retirement, or passing wealth to a future generation will find permanent life insurance as a better suited to address these goals. Always ask yourself why you need your life insurance policy. If it’s for a temporary goal, then term insurance is probably best. However, if it’s to address a long-term need or concern, then it’s time to start looking at permanent policies.