Term Insurance and Permanent Insurance Made Easy
Hey welcome back! This is Enrique with Empower Brokerage. Today, I want to talk about term insurance and permanent insurance. Most people are familiar with term life insurance, and a lot of people want to learn more about whole life, or permanent life insurance. Whole life and permanent insurance are interchangeable. There are many types of coverage in permanent insurance. Universal life, whole life with a mutual company, and index universal life are just a few of the common permanent insurance options. I’ll do my best to explain the difference in term and permanent insurance so it makes more sense.
Term insurance is similar to the situation of renting, rather than buying. Most of us have rented an apartment, or something else to that effect. So with renting an apartment, as long as you pay rent you have access to live in that apartment. Once you stop paying rent, no equity has built. Consequently, when the lease is up, you take what is yours and vacate the apartment. In the same sense, you have access to term coverage as long as you are paying the premium. Once the premium payments stop, there is no value built, and you no longer have coverage.
Permanent insurance is similar to a mortgage or buying something that builds equity, or value. When most people think of mortgage, they think of interest and principle. The majority of your payment is applied towards interest expense at the beginning of the contract. Therefore, you have more equity on your house at the end of your mortgage, whenever that may be.
Term Insurance and Permanent Insurance
To keep it simple, term insurance usually has a ten, twenty, or thirty year term. So for as long as we pay our premium payment, we have coverage. When we’re younger, it’s much more affordable. Opposite, when we’re older, it’s more expensive to have coverage. Nevertheless, your payment could remain level for however long the term is. So as long as you pay your payment, then you have coverage. If you pass away during that term, the coverage goes to your beneficiaries. If for any reason your premium does not get paid, your policy lapses. As a result, you have no coverage.
Permanent insurance will build up your your equity, or value. Just like mortgage in comparison to renting, mortgage is typically more expensive than renting. Similarly, permanent insurance is more expensive than term insurance. Permanent insurance is more expensive because you’re building up value within that policy. The built-up equity or value can potentially pay your premium down the road. Other uses include borrowing in an emergency, college tuition, retirement planning, or even just to take a vacation. So, there’s different options to use that equity.
For more details, feel free to call us here Empower Brokerage. We can go deeper into how these things work.