Term Insurance or Permanent Insurance?
Is it Possible to Save Money on Insurance Premiums?
May 11, 2009
Inadequate life insurance coverage may save money, but it compromises the financial security of a family in the event of premature death. It can be difficult to decide whether to take out level term insurance or permanent insurance. The level and type of coverage selected will depend heavily upon disposable income, savings and investments.
The Optimal Insurance Premium
The amount of life insurance chosen will depend largely upon marital status, debt, investments and the number of children. A life insurance calculator, such as lifehappens.org, can help consumers choose the optimal insurance premium. However, many families live on a fixed income and may not be able to afford the necessary coverage. Some term insurance is better than nothing.
Robert Hunter, director of insurance for the Consumer Federation of America, stated that: "You want to make sure a child is protected. That’s a considerable amount of money when you consider education, food, housing and vacations. The nice part of it is that once your child begins to grow up and graduates from college, you can buy less life insurance.”
Is Term Insurance or Permanent Insurance Cheaper?
Term insurance is vastly more affordable, especially if taken out when young. The incidence of premature death, based on age and pre-existing medical conditions, will ultimately determine how much life coverage costs. Permanent insurance is more expensive because the same pay-out is made no matter whether the insured dies at 28 or 82.
Why Choose Permanent Insurance?
Whilst insurance premiums are higher for permanent insurance, those opting for it will enjoy complete protection until they die. Unlike term insurance, life coverage doesn't end after 15, 20 or 25 years so it is possible to leave tax-free sum to a dependent at any age. Individuals regularly choose whole of life insurance for the purpose of estate planning because the benefits can be paid outside of the estate so won't be taxed.
Families that are working on a tight budget are likely to find that level term insurance is the more affordable option. Permanent insurance may appear a relative luxury, but it remains a whole of life insurance and can also help greatly with estate planning. The option chosen will depend largely on disposable income and the value of any property, investments and savings.
Readers that found this article useful may also be interested in identifying the best credit card deal, discovering how effective credit card debt settlement is or finding out how to avoid identity theft.
Sources
Chura, Hillary. (September 23, 2006) "How much is enough in insuring a life?" The New York Times.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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