Term Life vs. Permanent Life Insurance: Which Option is Best For You?

Purchasing life insurance now will provide you with the financial security needed for your dependents later if you’re no longer here to take care of them. After you pass, your family can use the proceeds to cover funeral costs, mortgage payments, college tuition, and other expenses. Each family has unique needs so it is best to understand the difference between term versus permanent life insurance to best protect your loved ones. 

Term life Insurance, Explained

Term Life insurance provides coverage for a certain time period and is designed only to protect your dependents in case you die prematurely. If you have a term policy and die within the term, your beneficiaries receive the payout. 

You choose the term length when you purchase the policy. Common terms are 10, 20 or 30 years. Typically, the payout or “death benefit” and the premium remain the same throughout the policy term. You would want to choose a term that coincides with the years you’ll be paying the bills and want life insurance coverage in the event you die early.

It is important to purchase an amount your family would need if you were no longer there to provide for them, as the benefit can replace your income and help pay for services you were once able to provide such as childcare.

Ideally, your family’s need for life insurance will end around the time the term expires, such as your children no longer being dependents, your house being paid off, and having proper savings to serve as a financial safety net. 

Permanent Insurance, Explained

Understanding term versus permanent life insurance is the fundamental grounds for your life insurance needs. Permanent life insurance policies provide lifelong coverage and include an investment component referred to as policy cash value. The cash value grows slowly, tax-deferred, meaning you won’t pay taxes on its gains while they’re accumulating.

You can borrow money against the account or surrender the policy for the cash. However, failure to repay policy loans with interest will reduce your death benefit, and if you surrender the policy, you’ll no longer have coverage.

Although it’s more complex than term life insurance, some permanent life insurance policy premiums remain the same for as long as you live. A portion of the cash value can be withdrawn or borrowed during the life of the policy.

Term and permanent life insurance will differ in cost as permanent is initially more expensive but can potentially save you money over the life of the policy. 

About Arroyo Insurance Services

Arroyo Insurance Services was officially established in 1986, but we have roots dating back to before 1950. One of California’s leading client-oriented and independently owned agencies, we have over 140 employees with a combined experience of over 450 years, spread across 11 locations. We are committed to providing the best insurance and risk management services at the most competitive premiums, and backing it with hands-on service tailored to our customers’ needs. For more information on how we can mitigate your risks, contact us today at (877) 220-4769.