There are many financial experts on the radio these days giving you an overwhelming amount of information. They all have their own strategies to get you out of debt and on the right path for a wealthy retirement. While all of them have different opinions and varying advice, one thing they generally agree on is to buy cheap term and invest the rest. Why is that? Is it because they don't understand the advantages of permanent insurance, or because they believe you can consistently earn 10%-12% investing in mutual funds. While that is unrealistic, this article will not challenge that. Instead, it is about making sure you understand the trade-offs you are facing.
So what are the differences between term and permanent life insurance? Term Life Insurance is exactly what it sounds like. It is life insurance that covers you for a certain period of time (usually 10, 20, or 30 years). The advantage here being, it is initially the least expensive. The problem is, the premiums are guaranteed to go up in price as time goes on. Additionally, you put all of your money into it and at the end of the period; you have nothing to show for it. Except a bunch of receipts! On the flip side, Permanent (Cash Value) life insurance is the opposite. It is the most expensive up front, but the premiums are guaranteed to stay the same, go down, or can even stop. Coverage however, will not stop. It will last until you are no longer here. The bonus here being, if you live, you will get all of your money back, plus a bank-type return.
What do both of these sound like? If you think about it, it is the same thing as deciding whether to rent or own a home. Renting a home is the least expensive up front, but your rent is guaranteed to go up over time. Additionally, when you move, you have nothing to show for it, except for your receipts!
On the other hand, Permanent Life Insurance is like owning a home. It is the most expensive up front, but the payments are guaranteed to stay the same (assuming a fixed interest rate) and eventually the payments will lower (if you refinance) and/or stop (when the house is paid off). Additionally, if you have it for 10-15+ years, at the end of it you can get all your money back plus a bank type return. (Homes usually appreciate in value!)
So the questions to ask yourself are: do you want coverage for a set period of time or for your entire life? Do you want to pay less now and more later, or a little more now and none later? Do you want a return on your money or just a bundle of receipts? Call my office today so I can go over your unique situation and see what makes sense for you!
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