There is a lot of debate between getting a term or a permanent life insurance plan. Some financial experts suggest getting a term insurance over a permanent one, while others suggest that permanent life insurance plans are better than the other.
What I want you to do is, JUDGE for yourself. But before judging which is better, read on first.
Let us define them first. (According to Investopedia)
Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active – or in force – then a death benefit will be paid.
Permanent life insurance is an umbrella term for life insurance plans that do not expire, unlike term life insurance, which promises payment of a specified death benefit within a specific period of years.
Permanent life insurance could be categorized into different plans:
- Traditional life insurance – insurance plans that gain cash values;
- VUL (Variable Universal Life Insurance) – part of the premium is being paid for the protection and part of it is being invested to stock market/investment instruments. Instead of gaining cash values, it gains Fund Values, that can be withdrawn as part of the investment by the policy owner.
Premium – amount to be paid by the policy owner to keep the insurance plan in-forced.
Now that we have defined them, let us now know the advantages and disadvantages:
TERM INSURANCE
Advantages of a Term Insurance:
- Cheaper.
- Can be used for short term insurance goals, like mortgage insurance) or MRI. Mortgage insurance is when you take out a loan when you buy a house. It protects the bank should anything happen to the borrower.
Disadvantages of A Term Insurance:
- The amount you paid is gone once you did not die or got sick in a particular year.
- Premium of the plan increases with age. For a 35y.o. Female with (5M life insurance + 1.5M Critical illness benefit) – It may start at 31K/year, but let’s say at age 60, premium could be at 109K/year. The insured has already paid a total of P1.4M (considered gone) if not utilized or the owner did not die or got sick.
- This is a temporary insurance, there will come a time this cannot be renewed when the policy owner reaches a certain age, for most companies in the Philippines, its age 69.
- Since this is not a lifetime plan, there will come a time, the insured does not have an insurance plan anymore (cannot be renewed), the problem here, there will no more for Estate Protection (estate tax purposes).
PERMANENT INSURANCE
Advantages of a Permanent Insurance:
- Locks in the premium to the age the policy was approved.
- The money if not used is invested, earns fund value with VUL, or earns cash value for traditional plans.
- Lifetime insurance if plan chosen has the lifetime feature. Until death do you part. Most permanent plans expires at age 100.
- This may be expensive than term, but there will come a time, the fund value may be equivalent or more than the policy owner amount paid.
Example: the policy owner paid a total of 500K after 10 years of the plan, then, when you look at the fund value of the plan, it may reach more or less 500K too, as projected. (Technically, FREE at some point.)
- If the money left for a long enough, can be used for retirement or other long term goals.
- Definitely, can be used for Estate protection (Estate tax purposes) since it will not expire until death or age 100.
Disadvantage of a Permanent insurance:
- More expensive than term insurance, at first. (Note #4 of advantages)
Those are the advantages and disadvantages of term and permanent life insurance.
If you ask me, which do I get for myself?
I have both, but for different reasons. Goals should always be the prime mover why you are getting a plan, either if you get a term or permanent. All depends on your needs and wants at that particular moment in time.
The best thing you need to do if you need to decide, is to make sure you are properly guided by a financial advisor that looks into your needs. Make sure you tell him/her why you need it.
If you don’t have anyone to help you decide right now, you can reach out to me by contacting me here, otherwise you can research the best advisor for you. Click this article to guide you: 5 Insider Tips on Finding the Right Insurance Agent/Financial Advisor For You
Guiding you along the way.
For your Financial Health,
READ MORE:
- Doctor’s Biggest Mistakes in Choosing a Financial Advisor
- Buy Term Invest The Difference (BTID), is that for me? Myth vs Reality
- What Type of VUL plans do you have? Protection-focused or Investment-focused?
- Buti pa ang Kotse Insured, Eh Ikaw?
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