Term vs. Perm
Term life insurance and permanent life insurance are two primary types of life insurance policies that offer different features and benefits.
Term life insurance provides coverage for a specific period, typically ranging from 5 to 30 years. If the insured individual passes away during the term of the policy, the death benefit is paid out to the beneficiaries. Term life insurance is known for its affordability and simplicity, as it offers a straightforward death benefit without any cash value accumulation or investment component. Once the term expires, coverage ends, and there is no payout if the insured individual outlives the policy.
Permanent life insurance, on the other hand, provides coverage for the entire lifetime of the insured individual, as long as premiums are paid. Permanent life insurance includes various types such as whole life, universal life, and variable life insurance.
These policies not only offer a death benefit but also accumulate cash value over time, which can be accessed through policy loans or withdrawals. Permanent life insurance tends to have higher premiums compared to term life insurance due to the cash value component and lifelong coverage.
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Term Life Insurance
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Permanent Life Insurance
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|---|---|---|
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Coverage Period
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5 – 30 years
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Lifetime
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Premium Amount |
Lower premiums |
Generally higher premiums due to cash value component |
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Insurance Policy Accounting
|
Generally considered a liability/expense like auto insurance
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The cash value component is typically viewed as an asset on your balance sheet
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Living Benefits * |
No |
Yes |
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Cash Value * |
No |
Yes |
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Dividend Participation * |
No |
Yes |
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Borrow from policy *
|
No |
Yes |
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Supplemental Retirement* |
No |
Yes |
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Long Term Care Rider Option* |
No |
Yes |
Designing Coverage That’s Right For You
Term life insurance offers temporary coverage for a specific period, while permanent life insurance provides lifelong coverage with a cash value accumulation feature and several living benefits as listed above. The choice between term and permanent life insurance depends on factors such as budget, financial goals, and coverage needs. Connect with us today to learn more about how term, permanent or a combination of the two solutions can meet your needs.
Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (cost basis). If the policy is a Modified Endowment Contract, policy loans and/or distributions are taxable to the extent of gain and are subject to a 10% tax penalty if the policyowner is under age 59½.
Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.
The decision to purchase life insurance should be based on long-term financial goals and the need for a death benefit. Life insurance is not an appropriate vehicle for short-term savings or short-term investment strategies. While the policy allows for loans, you should know that there may be little to no cash value for loans in the policy’s early years.
The information provided is not written or intended as specific tax or legal advice. FundaDream, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
Insurance products and services are offered through FundaDream Insurance Solutions, Inc., California License No. 0M95835