Holistic Financial Planning

“Life insurance? Buy term or permanent”

by former Abiding Wealth Advisors, LLC Advisor

Life Insurance Analysis

As an advisor, it is important to look at the entire financial picture holistically.

One of the main needs that must be addressed is life insurance because an unexpected death can leave a family financially devastated.

If there is a need for life insurance, the question then becomes:

“Should you buy term or permanent life insurance?”

I examine that question for each of my clients that need additional insurance. Here is a great analogy to help you decide what is best for your family.

To understand the difference between term life insurance and permanent life insurance, consider the differences between renting a home vs owning a home.

  •  The monthly rent of a home is less expensive than the monthly mortgage and taxes of owning a home of the same size.
    • Term life insurance premiums are less expensive when issued than the premiums of a permanent life insurance policy.
  • Owning a home usually means paying a level  mortgage payment while renting typically increases over time.
    • Permanent life insurance has a level premium for the life of the policy while term life premiums are only fixed for a specific set of years but then increase after that period.
  • Renting a home is generally seen as a temporary step toward owning a home.
    • Many people buy a term policy until they can afford a permanent life insurance policy.
  • Owning a home builds equity (value) while renting a home provides no investment return.
    • Permanent life insurance builds cash value that the policy owner fully owns; term life has no cash value benefit to the policy holder.
  • A home owner may borrow on the home’s equity; no such benefit is available to the renter.
    • Permanent life policy owners may withdraw or borrow cash value from their life insurance when needed for emergencies or retirement.

What is your life expectancy?

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