Term or Permanent Insurance….What’s the difference?

When sitting across the table from my clients I often ask, “Do you know the difference between term or permanent insurance.” Most of time the answer is no. At this point, I highlight some of the key points…

The need for insurance has to be established…

Term-Insurance for a specific period of time. Mortgages, loans, young families with high debt ratio.

Permanent-Special needs child, Income tax liabilities, any debts to be paid at death and business partnerships.

Do premiums increase with age?

Term-When you purchase a term policy your premiums are locked in for that term and increase at renewal time. You have the option to renew it but at a higher premium.

Permanent-No, the premiums are guaranteed not to increase.

How long does someone pay the premiums?

Term-The duration of the term.

Permanent-There are a number of ways…a quick 20 year pay, till death or if you cancel the policy.

Can the policy be renewed before it expires?

Term-Yes…your policy is non cancellable and guaranteed renewable. In order to receive the best rates possible, your broker should be contacting you to establish if your financial situation has changed before the policy expires.

Permanent-Permanent insurance covers you for the duration of your life. It can pay death benefits at any time, and there is no expiration date, as long as the policy is active.

Is there a penalty for cancelling the policy?

Term-No

Permanent-Perhaps, you can cancel or surrender your policy but you may have to pay surrender charges which is like paying a back end load when you sell shares of a mutual fund.

How much does it cost?

Term-Very affordable at a younger age with premiums increasing over time.

Permanent-More expensive than term insurance but if the need is to have insurance for an extended period of time than it can be more economical.

Does any of the premium act as a savings component?

Term-No

Permanent-Builds up a cash value. A portion of the premiums are invested and offers additional benefits.

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