Consider some of these key differences to decide which is right for you.

  1. Length of coverage. Term life insurance provides coverage for 1-, 10-, 15-, 20-, 25- or 30-year terms, and it’s designed for flexibility. Permanent insurance, which includes whole life and universal life, is designed for lifelong financial protection, as long as the policy’s in force.
  2. Cost of premium. Initially, term life premiums are generally lower than permanent life. However, term life premiums typically increase upon each renewal, while permanent life premiums stay the same.
  3. Cash value. With most types of permanent insurance, there is a savings component known as cash value; the longer you pay into your policy, the more its cash value grows. You can choose to cash in or borrow against your permanent life policy and use the funds as needed. Term insurance does not accumulate cash value because it doesn’t have a savings component.
  4. Convertible policies. If you have a term insurance policy, you can convert it to a permanent policy. Permanent policies are not convertible.
  5. Death benefits. All our life insurance products pay a death benefit upon the insured person’s death if the contract and term have not expired and are still in good standing.

Quick Summary

Term Life Insurance

Permanent Life Insurance

What is it for?
  • A committed amount of time that provides protection from the financial impact of death
  • Lifelong protection from the financial impact of death
  • Asset building that provides an investment option as well
  • Estate planning
Who is it for, mainly?
  • People that want high coverage for a low monthly cost
  • People who want lifelong coverage and the ability to invest their premiums to build an asset
What are the advantages?
  • Relatively cheap for the coverage that the policy provides
  • Guaranteed lifetime protection continues even if your health fails
  • The cost is guaranteed to never go up
  • Later in life, it’s less costly than term insurance
  • Opportunity to cash in or borrow against its accumulated value
What are the disadvantages?
  • Coverage is not permanent; the protection ends when the term ends
  • The cost goes up if you renew when the term ends, usually after 10 or 20 years
  • More expensive than term insurance.
  • Lower death benefit for the higher cost
  • Key benefits aren’t obvious; professional advice will help you use it effectively.
Can you convert it to the other type of insurance?  Yes  No
Can it supplement the insurance you have at work?  Yes  Yes

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term life insurance

Your insurance costs will remain the same for a specific period of time (the “term”), until it renews for another term. If you die while the policy is in effect, a tax-free payment will go to the person or people you name (your “beneficiaries”). And with most term policies, you can also convert your coverage to permanent insurance regardless of any changes to your health, occupation or lifestyle.

Renewable vs. convertible term life insurance
Renewable term life insurance is coverage that automatically renews at the end of the term. If your coverage expires after 10 years, you’ll automatically be renewed into a new 10-year term. When you choose renewable term life insurance, your premiums will increase at renewal, so it’s a good idea to compare term life insurance quotes before your term expires.

Convertible Term Life Insurance gives you the option to convert your term life insurance policy to a permanent life insurance policy. The primary benefit of having a convertible policy is that you won’t have to pass a medical exam to get permanent coverage. If you’re diagnosed with a serious illness while you have a convertible term life insurance policy, you can convert to a permanent life insurance policy you might not otherwise have been able to get.

How much life insurance do you need?
One of the most important choices in choosing a life insurance policy is deciding how much coverage you need. There are a number of different questions to ask that will influence your decision:

  • Your family situation: If you have young children, how much money would it cost to raise them?
  • Your debts: How much do you owe on your mortgage and other loans? Who will be responsible for making payments if you pass away?
  • Your income: How much do you make after-tax each year? How long will your family need your income to be replaced?

Sample calculation
Mike is 35 years old, earns $70,000 a year, is married, has 2 children under 5, and has a mortgage with 20 years left to pay with $350,000 outstanding.

Cost to raise 2 children to age 18 $500,000
Mortgage $350,000
College tuition for two children $50,000
5 years income replacement $350,000
Total Coverage $1,200,000

In this scenario, Mike’s major expenses are the cost of raising children and his mortgage. In this case, it makes sense for Mike to choose a 20-year term. After 20 years, his kids will be over 18, and his mortgage will be paid off. At that time, he can save money on life insurance by renewing into a lower coverage amount.

What factors influence term life insurance rates?
Term life insurance rates are based on how likely it is you’ll pass away during the term. The biggest factors that impact how much you’ll pay for term life insurance are how old you are when you sign up for your policy, the length of the term, and whether you are a smoker.

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Permanent Insurance

Permanent life insurance will cover you for the duration of your life as long as you continue paying your premiums on time.  Permanent insurance can be purchased as either Whole Life or Universal Life Insurance.

Steady premiums
The premiums in whole life insurance stay level for the entire duration of the policy. This means that they start at a higher rate than term life policies, but will eventually be lower at later stages of life, as term life premiums increase each time you renew your policy.

There are some whole life policies that will allow you to pay premiums, sometimes increased, for a set period of years or to a certain age, with no more premiums required after that.

Fixed investment portion
Whole life insurance, along with universal life insurance, has an investment component, separate from your insurance component. This is called a participating policy, meaning you may participate in the profits of the insurance company through investment.

In whole life, the insurer decides how the investment component is invested, but it is typically a steady rate of return with low volatility. The investments are in a tax shelter, meaning all investment income earned in a whole life insurance policy is tax-free when left to a beneficiary. (The investment income is taxed if borrowed from the policy.)

Cash value
Also, permanent policies feature a cash value, also called a “cash surrender value” or CSV, which grows the longer you’ve had the policy. This amount exists if you want to borrow against your policy or cancel it to redeem the CSV, also called “surrendering.” This amount, once withdrawn, is not shielded from tax, so surrendering your policy to collect that amount can lead to a substantial chunk taken away from your insurance payout that you’d have worked for a long time to earn. There may also be other consequences, like having to repay the borrowed amount back into your policy within a set time, so be sure to understand your policy.

Most policies will not have this option available from day one, but rather after five or ten years of paying into the policy. Many insurers also charge high surrender fees that gradually decrease over time.

What’s the difference between whole and universal life insurance?

There are three main differences between whole and universal life insurance policies:

  1. Premiums. Whole life insurance premiums stay the same for the entire duration of the policy, whereas universal premiums can be negotiated higher or lower, depending on the company and your policy.
  2. Death Benefit. Because the premiums of universal life can change, so can the amount of death benefit. This is reflective of the amount of cash value in the policy at the time of death and can be negotiated before death with the insurance company. The death benefit of whole life insurance grows with the investment portion, but can be predicted more easily.
  3. Investments. Although both whole and universal policies have an investment component, only in universal can you decide what the investments consist of. In whole life insurance, the company decides upon the investments.

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You are considered a non-smoker if you have been smoke free for 365 days.
This also includes the smoking of cannabis products.

Death Benefit: How to choose the amount for you.

Typically clients choose an amount that will pay off their mortgage and other debts to free up your survivors of these burdens. An additional $100,000 or more is then added to cover funeral expenses and children's education.  One last key criteria is to consider lost income, which our licensed life insurance agent can help you validate

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If you have any other questions or comments, please let us know.

I went to one of Jaret’s “Life Insurance Uncorked” events where he spoke about the various types of coverages available. Highly recommended!

Tracy C.

You will not be sold a product you do not need when dealing with Jaret. He’s honest and upfront about everything he talks about. I decided on an Term 20 policy because it was right for me.

E. B.

Jaret explained to my wife and I the different types of Life Insurance available. After we talked, I feel very confident that my family is truly covered ‘just in case.’

Ryan H.

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I would love to hear from you! Let me know what what services you are interested in or if you just want to have a chat about your current financial circumstances. I’m here to listen and then give you my professional feedback.

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