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Understanding Life Insurance—Term Vs. Permanent


 UNDERSTANDING LIFE INSURANCE—TERM VS. PERMANENT

If you know the difference between permanent and term life insurance, you can choose better protection without any regrets in the future. To avoid any regrets and for better protection in future you need to understand the difference between permanent and term life insurance. So, you buy a product and it works exactly the same even after 20-30 years. How would you feel? Good, right? No regrets? The fact is that people buy and keep renewing their term insurance for even 20 years, but so many of them are not happy with their insurance now, especially if that is the only life insurance they have. Renewal of term insurance, in fact, has made them spent thrice or even four times the premium that they used to pay initially.

So, what people do to tackle this buyer’s contrition after so many years?
One of the saddest things people do is ending their term policies, and as a result leaving their families financial security at risk.

The insured needs to think futuristically while buying a life insurance policy. They need to go a level deeper and before landing on a decision about whether they need term insurance or permanent life. And you one may not choose just one, even choosing both is an option.

Difference between Term and Permanent Life Insurance

 

Term Life Insurance

Permanent Life Insurance

What is the purpose? 1. Provides temporary protection from the financial impact of death 1. Provides lifelong protection from the financial impact of death
2. Offers protection with tax-advantages, and cash value growth
3. Estate planning
To whom it is mainly for? 1.Business owners
2. Homeowners with mortgage and young families
1. Adults who are planning long term
2. People who are already having benefits of registered accounts like RRSPs and TFSAs.
What are the benefits? 1. If you are young, this is going to be expensive for you initially.
2. Helps you to buy lots of coverage
3. Easily understandable
1. Even if your health breaks down provides you guaranteed lifetime protection.
2. The cost doesn’t rise (Most types of permanent insurance).
3. After some years, it is less costly than term insurance plan.
4. People whose RRSPs and TFSAs are highly extended, it provides tax-advantages and cash value growth opportunities.
5. You can add in or borrow cash against its accumulated value.
What are the drawbacks? 1. The coverage is not permanent. (when the term insurance expires, It needs to be renewed).
2. The cost is increased when you renew the term insurance (happens 10, 20, 30 years).
3. You can not cash in or borrow against accumulated value.
1. It’s much more expensive for young people than term insurance is.
2. You need professional advice to use permanent life insurance effectively.
3.You cannot predict the key advantages.
When it is most cost-effective? 1. If you are young
2. When you are only looking for temporary protection (until you have cleared your mortgage or your children are not financially dependant on you)
After your 40’s, 50’s
1. When you have accumulated cash value in your policy
2. When you have enough landholding to pass to the heirs or to charity organizations
3. If you have higher taxable income bracket
Is it covertable to other types of insurance? Yes No
Does it boost the insurance you have at your work? yes yes
Considered trends Increasing consumer debt and mortgage This is going to be most persistence option because this policy is lifelong, not temporary.

 

So, what plan do you think is the best for your family protection and can help you to achieve your financial goals? Depending upon your circumstances, you can either choose one of these options or both. But,
there are many other key-advantages of buying a permanent life insurance which I haven’t explained in this article. It is always recommended to seek help from an expert advisor who can support you in making the best decision.

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