Difference between Term Insurance and Permanent Insurance ! What you need and why !

October 25, 2012 at 5:06 pm Leave a comment

When you are shopping for life insurance, a lot of people are not aware of some very simple differences between term and permanent insurance. This  article series is setup to shed some light on most important factors you need to be aware of before you make your purchase. 

Why do we use Term life insurance?

Term insurance is setup to be present for a set “term” or period of time. This term vary from 5, 10,  20 , 25  and 30 (and many other options) and after that term expires it then goes up in price… sometimes the price increase is pretty dramatic.

We use this term insurance for your protection needs that are for a set amount of time. This could be to offset a mortgage, pay for your children’s education, or pay off other debts (business, consumer, etc) if you passed away.

Why do we use permanent insurance?

We use permanent insurance for your insurance needs that are unlikely to change over time. This could include things like burial costs, donations to charity, or giving money to your heirs (this could also be considered charity for a lot of people). These are all needs that are unlikely to change dramatically as you age and will likely still be your needs/wants 20-50 years from now.

How do they work together?

Typically for young families in the Lower Mainland at around 30 years old we are buying our first houses, getting married, and having kids. At this point you may have some consumer debt, a large mortgage, and young kids that you will want to put through school should something happen to you. This is one of the times in your life when you will need the most amount of insurance compared to any other time in your life. Most of these expenses are also pretty time sensitive. By the time you reach 50 or 60 you should have the majority of your mortgage paid down (hopefully paid off) and your kids will be out of school and moved out of the house (if you’re lucky). At this point you will have no need for that term insurance anymore and should be able to remove it before it increases in cost.

The permanent insurance should already be put in place and continue to be in place for the rest of your life as this is insurance that doesn’t change much over the course of your life.

There are a few other things to be aware of and I’ll explain a few of those in the next  article.

 

 

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