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Term Life Insurance vs. Permanent Life Insurance

People throw the words “life insurance” all over the place, but do they really understand what life insurance is? Life insurance is a type of insurance that kicks in upon death, life being the thing insured in this case. Upon the death of the insured person, one or more beneficiaries will receive money from the insurance company. People usually carry life insurance in order to make sure that anyone who was financially dependent upon them will remain financially secure despite the deceased’s loss of income. Some people purchase life insurance so their family can properly settle the financial affairs of the deceased while others do so to ensure that their loved ones will not have to bear the expense of paying for the funeral.

The person insured is known as the insuree, and the company doing the insuring is known as the insurer. The person who will receive money from the insurance policy after the death of the insuree is known as the beneficiary. An insured person can designate anyone their beneficiary as long as they do so ahead of time.

There are two types of life insurance available: term life insurance and permanent life insurance. Permanent life insurance, as the name suggests, is permanent – that is, it will last for your lifetime. As long as the insuree keeps paying the monthly premiums, the insurance policy is still valid. Permanent life insurance can be further divided into whole life insurance and universal life insurance. If an insured has whole life insurance, that means they will always pay the same premium each month no matter what. An insuree with universal life insurance will find that their premium is not the same month to month; depending upon the current market conditions, the premium may rise or fall.

Term life insurance is also relatively self-explanatory; it is life insurance that only lasts for a term. Term life insurance will only last as long as was agreed upon when the insuree purchased the insurance policy; that period of time is the term in question. Like permanent life insurance, the insuree is required to keep up with monthly payments to maintain this policy. When the term life insurance expires, the insuree has the option of extending the policy. However, extending a policy does not guarantee that the insurer will provide the insuree with the exact same policy they had before; at this point, the insurer has the choice of raising the premiums and changing the policy.

Term life insurance is a better deal in the short run. The reason for this is because term life insurance often has much lower premiums than permanent life insurance would for the same period of time. The downside to this advantage is that it may be short-lived; every time the insured extends the policy, the insurer may raise the rates. For example, if you originally took out a policy for a period of five years and extended it six times, which resulted in a policy spanning thirty years, those once low rates have probably sky-rocketed by the end of the period. If you need life insurance for an extended period of time, it may be to your advantage to get permanent life insurance.

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