Understanding Life Insurance

There are only two kinds of life insurance - TERM and PERMANENT and each of these products has four unique characteristics. Term Insurance is like renting a home and permanent insurance is like buying a home.

For those who have a life insurance policy one of the biggest money savings tips I have to offer is... you must make a habit of reviewing your policies each and every year!

LIFE INSURANCE - The Features

Term Insurance & Permanent Insurance Similar Features

Term Insurance and Permanent Insurance have one similar feature. They both provide a place to live - Death Benefit. The most important issue in life insurance to be discussed is the proper amount of coverage whether it is term or permanent.

Term Insurance Simplified

1. Low Cost - Initially

2. Cost goes up

3. No equity

4. Coverage ends

Permanent Insurance Simplified

1. Higher cost - Initially

2. Cost remains level

3. Builds Equity

4. Coverage never ends

Term Insurance

Term Insurance Characteristic #1

Term insurance is low cost - initially ...just like renting a home is cheaper than buying a home. Right?

Term Insurance Characteristic #2

Over time term insurance premium will go up. Depending on the term 10, 15, 20, 30 years, eventually that term will end, and your premium will increase. Just like with renting a home or apartment, your lease is for so many years, but when that lease is up, guess what, your rent will increase.

Term Insurance Characteristic #3

Term insurance has no equity. When the designated term of the policy ends, that's it! When you lease a home/apartment and the lease is up and you decide to move, what do you receive back? Nothing, except a small damage deposit.

Term Insurance Characteristic #4

The most significant is at some point in the future, even if you are still alive, the coverage will end. Some pay until they are 80, 85, or 90 but they are expensive later in life. Every term policy I have seen has a drop-dead point, even if you are still alive. I ask you, when are policies need most? When you die! These term policies terminate right when they are needed most. Unfortunately because most term policies are so expensive later in life most people drop them before they run their course. Alas, all that money (just like rent) has been thrown to the wind.

I'm not saying term isn't good, if you're young and need to protect your family for a certain amount of coverage and permanent insurance premium is over your budget, then by all means term is the way to go. however, now you know what you are buying.

Permanent Insurance

Permanent Insurance Characteristic #1

Permanent Insurance has a higher cost - initially. It's more expensive to buy a home than rent, right?

Permanent Insurance Characteristic #2

This second characteristic is a good one. The premium stays level. If you take out a traditional 30-year fixed mortgage on a home, how much do you think your payment will go up? - Zero. The 360th payment is the same as the first. Simply from an out-of-pocket expense standpoint term insurance will start loser, but it will eventually end up costing more than permanent. Just like it would cost you more out-of-pocket twenty years down the line to rent than it would if you had an equivalent home at the same time, you stared renting.

Permanent Insurance Characteristic #3

Permanent Insurance builds equity, just like a home does. If you lived in a home for twenty years and sold it you'd not only receive back what you paid for it but probably a whole lot more.

Permanent Insurance Characteristic #4

The coverage never ends, as long as you are paying the proper premium. With most quality permanent insurance there is not a predetermind date in the future where the coverage cease to exit. So, it's designed to be there when you need it - much later in life.