For the majority of people, the question shouldn’t be about which one to choose because both types of life insurance are designed to help meet different type of needs. A combination of the two is appropriate for many people. Let’s take a closer look at both.
Term insurance usually provides the largest amount of insurance protection at the lowest initial cost. For this reason, term is what most people start out with. Because term policies end at a specific point – the end of the term – they work best for providing protection for large needs with specific end points. For example, a parent of a young child might purchase a 20-year term policy to provide protection until their child is over 18 or out of college. Then, the child might be responsible for getting his or her own coverage. Other periods that you might consider term insurance to cover include the time:
- you plan to continue to work and have other relying on your income
- remaining on your mortgage
- remaining on an outstanding business or other loan
Permanent insurance is designed to last as long as you live and typically makes a great supplement to term insurance. You may want insurance after your term coverage ends, either for life-long or unplanned needs, or for needs with an unpredictable or extended end date.
Good reasons to have permanent insurance include helping to take care of:
- someone who becomes or may still be dependent on you (either financially or for care, or both) such as children who are not yet independent or who have special needs
- the costs associated with your death (final expenses) such as funeral or memorial costs, outstanding medical bills, and estate taxes
- a once-temporary need that you have extended – for example, a refinanced (and possibly extended) mortgage, a home equity loan, a delayed retirement date (meaning extended income-earning years) or a new business
- your grandchildren
- your “second” family from remarriage
- someone, such as a parent, who has developed a condition and who now requires your care