Schulfer column: When permanent life insurance makes sense

You probably have heard the saying, “Buy term and invest the rest.” This slogan encourages people to buy inexpensive term life insurance instead of permanent life insurance, and then take the money saved and invest it.

This isn’t always sound advice. That’s why it is important to understand the differences between term and permanent insurance, and the circumstances in which one or the other might be a better choice.

Term life insurance

When you purchase term life insurance, you pay a low premium and receive insurance coverage for a specific period of time. If you die during that time, then the policy’s benefits go to your beneficiary. Most term policies can be renewed until you reach a certain age, and then coverage ends. If the policy expires before you do, your heirs receive no benefits. Term insurance makes sense in two situations. It might be a good choice when:

Cost is an issue: For example, a young family on a budget might not be able to afford permanent life insurance. In that case, term life might make sense.

Insurance needs are temporary: Term might be a good choice when the period for which life insurance is needed is defined and exact. For example, if a bank wants a business owner to have life insurance before it will make a loan to his or her company.

Permanent life insurance

Permanent life insurance, generally, is owned for life. You pay higher premiums and part of your premium payments goes into a cash value savings account. If you want to have insurance coverage until you die, then permanent life insurance might be a good choice. Permanent insurance also might make sense when:

Taxes are an estate planning issue: Life insurance proceeds are income tax free and, if owned by an irrevocable trust, can be estate tax free, as well.

Planning for the unknown: Term premiums increase as you age and might provide significantly lower benefits later on. Permanent life insurance offers coverage for life. If you’re not sure what the future will hold, permanent life insurance might be a better choice.

There are many types of term and permanent life insurance. Our goal is to manage your insurance as we manage your other assets — in the most efficient manner possible. If you have any questions about life insurance, please give us a call. We will be happy to help.