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Which Life Insurance Is Right For You?
November 3, 2014 | Chris Kissell; excerpted from Thrivent magazine
Experts discuss the difference between term life insurance & permanent life insurance
Why do you need life insurance? A few reasons, like covering your mortgage if you die, helping pay for college, or helping making sure your family will be OK without your income. There are two basic types: term and permanent. So ... which one does what?
Permanent life insurance
As you might guess from the name, permanent life insurance will be in place as long as the premium payments are made, until you die. It generally costs more up front, for the same amount of coverage, than term life insurance. The cost depends on different factors including amount purchased (that is, how much money do you need the contract to pay when you die) and your health and age at the time of purchase.
Permanent life insurance also includes the potential to build up money (known as cash value) within the contract. Some permanent life insurance contracts allow you to withdraw some or all of the cash value. This may help for expenses like a down payment on a home or college tuition or even the unexpected (like health care bills). Withdrawals will reduce the size of the death benefit, of course, and they will reduce the amount of cash value available to you in the future.*
Term life insurance
Term life insurance is a simpler type of coverage. You buy term life insurance for a certain period of time – often for 10, 20 or 30 years – and if you die within that time frame, a death benefit is paid out to your beneficiary. Term life insurance does not build up cash value. Just like car insurance, if you need it it's there; if you don't, it goes away.
When purchasing term insurance, most people – 97%, according to the Insurance Information Institute's 2013 statistics – buy level term coverage, meaning the amount of your benefit generally remains the same throughout the contract. Generally speaking, the cost of term life insurance depends on your age and health at the time you purchase the insurance. Premium costs also typically remain the same throughout the original length (or term) of the contract.
Life insurance can be a flexible financial tool. Different types and combinations can meet a wide range of needs. Talk to a Thrivent Financial representative to figure out which one – or both – is best for you.
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* Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Contact your tax advisor for further details. Loaned values may accumulate at a lower rate than unloaned values.