Term life insurance does not build cash value, so at the end of the term, the policy will have no value.
An additional benefit of term life insurance is that it is a simple product, so comparison shopping is quite easy. The market for selling term life insurance is competitive, presenting life insurance good values for consumers.
For many consumers, the only way they can afford the coverage they need, for the time when they need it, is through term life insurance. For those people, it’s the life insurance product of choice. Jeremy Ragsdale, vice president, Life Insurance and Annuities at TIAA-CREF, notes that more than 85 percent of the policies life insurance sold by TIAA-CREF are term policies, although they represent a much life insurance lower percentage of total premiums.
Pros and cons of permanent life insurance. Permanent life insurance may provide protection for your entire life insurance. If a guaranteed level premium is important to you, make sure your life insurance policy provides for one.
Who should consider permanent insurance? According to independent life insurance consultant Glenn Daily, permanent life insurance can make sense for consumers who need to create liquidity in order to pay projected federal estate taxes. He also recommends permanent life insurance to those concerned about asset protection, where state law provides that the cash value and death benefits of life insurance policies are not subject to claims by creditors.
Permanent life insurance also has an element of forced savings that can be attractive. In this environment of low interest rates, Daily notes that some policies have been paying a tax-deferred return of 4 percent or more. Of course, mortality and administrative costs of the policy will still be deducted life insurance.
Steck notes another situation in which permanent life insurance may be the preferable option. If you are a retired couple concerned about spending money because it will deplete the inheritance you wish to leave for your children, Steck recommends designating a small portion of available funds and buying a survivorship-permanent policy. This policy should have a no-lapse guarantee. Steck believes this kind of policy will assure the couple that their children will receive the intended inheritance, while allowing them to enjoy their retirement.
Ragsdale notes that permanent life insurance is no longer used only for estate planning or wealth transfer. He has seen an increase in policies issued to those who are older than 50, to cover newly acquired mortgages and other financial obligations.
Most retirees don’t need significant (or any) life insurance when they retire, unless they still have dependents, need to fund life insurance funeral expenses or provide for their spouse.
Term insurance often prevails, in theory. Both Daily and Steck believe term life insurance is the best option for most consumers. Daily considers it the “default option” and says he “has to be convinced” that cash value life insurance is a better one.
You have probably heard the expression “Buy term and invest the difference,” as a justification for buying term life insurance. This saying is premised on a critical assumption: You will actually invest the difference instead of spending it life insurance. It also assumes the historical performance of the capital markets life insurance will continue in the future.
Insider information on cash-value life insurance. Few consumers understand there are skilled professionals who can recommend cash-value policies that may be more suitable than those typically offered to them. For example, a “blended” policy combines whole-life and term-life life insurance into a single policy. This kind of policy may generate higher near-term cash values and higher death benefits at life insurance expectancy than whole life alone. Blended policies are sold by many highly rated life insurance companies, including Northwestern Mutual, Guardian and MassMutual. These policies can be competitive with term policies for life insurance some consumers.
Blended policies are not a panacea. Steck generally does not recommend them because of the heavy reliance on non-guaranteed dividends.
When considering the purchase of permanent life insurance, Steck believes it’s important to focus on what is guaranteed and what is projected (or hypothetical). You will need to carefully monitor the policy life insurance if you are making a decision based on hypothetical scenarios that rely on a projected dividend, interest rates or subaccount performance life insurance. You should also be prepared to make additional life insurance capital contributions, if necessary.
