We have all heard about the good and bad things about life insurance. Someone in your social circle might have life insurance and recommends you get one because they have had a great experience. However, chances are that once in a while you will also come across a person who will have faced a life insurance disaster, and only tells you to not get stuck with something like this.
Well, William Schantz says neither of them is wrong because your experience with life insurance depends on the policy you pick for yourself. There is a huge possibility that you might not have a good experience with life insurance because you didn’t choose the right type of insurance policy plan for yourself.
This is why Schantz decided to compile the pros and cons of the 2 major types of life insurance policies- permanent life insurance and term life insurance – to help you decide which one fits you best. Let’s get to it!
Permanent Life Insurance
Permanent life insurance is the insurance policy that is for a lifetime. As its name suggests, it is “permanent” and stays with the persons for their whole life – until the policyholder wants to stop paying for the premiums and decides to surrender.
Pros
● Lifetime Coverage
As we told you earlier, permanent life insurance lasts a lifetime – which is the most significant advantage of this insurance policy. You don’t have to worry about losing your coverage after a certain number of years – it stays with you “forever.” Moreover, if you have people dependent on you throughout your life (such as a disabled child, or a sick sibling), then you don’t have to be wary about their finances by the end of the term.
● Growth is Tax-deferred
Using permanent life insurance, which offers the investment component, you can grow your wealth on a tax-deferred basis. This means you don’t have to pay taxes on interests, dividends, or capital gains of the cash value components – until you withdraw the process.
● Borrowing Against Cash Value is Possible
If you need a sudden inflow of cash, for example, to buy a house or pay for your college, you can borrow money against the cash value of your permanent life insurance policy. However, if you put money in a retirement plan which is tax advanced (such as a 401 k), and you want to borrow money for anything other than retirement, you will have to pay penalties.
Cons
● Cost
Cost is the biggest disadvantage of a permanent life insurance policy. As compared to a term life insurance, permanent life insurance is quite expensive as you are required to pay higher premiums – hence if you don’t need insurance for a lifetime, you’ll be paying unnecessarily.
Term Life Insurance
Term life insurance is the opposite of permanent life insurance – as its name suggests, the insurance policy lasts a certain “term” period. Most common term life insurance lasts about 2 to 30 years.
Pros
● Flexibility
Term life insurance policies are very flexible; you have the liberty to choose your time period. For example if you need life insurance only for 10 years, you can choose a term life insurance that matches your timelines and terms.
● Lower Premiums
Unlike permanent life insurance, term life insurance is more affordable; you have to pay lower premiums. Moreover, since it is only for a set period, it is much less risky as well. Hence, William Schantz says that the younger you are when you buy the policy, the lower the premiums you have to pay.
● Can Shift to Permanent
The best thing about term life insurance is that you can always convert your policy and shift to permanent life insurance if you feel like it. This may increase your premiums, but it is going to be worth it.
Cons
● No Cash Value
Unlike the permanent life insurance policy, the term life insurance policy has no cash value, which means there is no investment component. Hence, when the policy term ends, the beneficiaries don’t get anything, and the policy just lapses.
Conclusion
Now that you know about the two different life insurance policies and their pros and cons, you can decide which policy suits you best. William Schantz has always suggested that people do comprehensive research before buying insurance to ensure they are satisfied with what they have invested.
