The easiest way to understand the differences is to compare them to renting versus owning a home. With term insurance, your policy is for a fixed period of time, similar to renting. You build no equity – and when you stop paying, your coverage ends. Permanent life insurance enables you to build equity and cash value while you own – just like homeownership does.
Term Insurance: Provides a death benefit for a fixed period of time. Death benefits pass to the beneficiary free of federal income taxes. No cash value. Many policies expire; the insured may need to re-prove insurability to prevent a substantial increase in premium. Inexpensive for short-term needs. Premiums will increase after term period expires. Permanent Insurance: Can provide a death benefit for the insured’s entire life. Death benefits pass to the beneficiary free of federal income taxes. Equity/cash value growth is tax-deferred. No need to re-prove insurability, as it is guaranteed under the contract. Should be held at least 20 years to balance out the expenses of the policy. Level premiums (generally).
Abbie Green, Financial Advisor
3560 W 41st Ave, Vancouver BC V6N 3E6