Which Type Of Life Insurance May Be Right For You

There are two basic kinds of life insurance:

  • TERM insurance is simple, affordable coverage you buy for a set period of time.
  • PERMANENT insurance combines insurance with savings and covers you for life.

Choosing between term and permanent insurance is often compared to the difference between renting and buying a home. Like renting, term insurance is a good choice if you need protection for the shorter term or have limited resources to pay for coverage. Monthly premiums are usually lower, but some policies can increase in cost as time goes on. Like renting, you don’t build up any equity or cash value.  When your term is up, so is your coverage.

When you buy your own home, you’re meeting your immediate need for shelter with a long-term solution. Your monthly costs may be higher than renting, but your mortgage payments help you build equity over time. Likewise, permanent life insurance provides you with long-term protection. Monthly premiums are usually higher than they are for term insurance, but your premiums also build cash value in the policy — funds you can easily access by making withdrawals or taking out a loan.

In general, the longer you need life insurance protection, the better value permanent insurance can be. If you need protection for the shorter term, term insurance may be a better choice.

Comparing Term and Permanent Life Insurance

The right kind of insurance depends on why you need insurance and what features are important to you. No matter what kind is best for you, purchasing the right amount of life insurance is one of the most important things you can do to help protect your family’s financial security.

  Term Insurance Permanent Insurance

Protection Level amount of protection. Adjustable — you have the flexibility to change your death benefit option or the amount of the death benefit.

Premiums Initially low cost, but increases at the end of your policy's term. You can choose a payment amount to fit your budget and other financial goals. You can change the payment amount and how often you pay. Increase, decrease and even skip payments, within certain limits.  Note:  Restrictions may apply.

Savings No savings feature. Your cash value earns a competitive rate of interest and grows tax deferred.
You have convenient access to your cash value through loans and withdrawals. Note:  Restrictions may apply. Withdrawals and unpaid loans reduce the death benefit.
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© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017