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Question Mark: How is permanent life different from term?

August 15, 2022

As you’ve probably guessed by now, permanent life insurance is just that – permanent. That is to say, it lasts from the day you buy it to the day you die. This type of life insurance can be much more expensive than average term life insurance plans.  

The cost associated with permanent life insurance stems from the fact that the insurance provider knows that they will eventually have to pay out. And until such a time comes when death is not inevitable, they are going to make you pay for it. It is up to you to determine whether you think this pricey option is worth the extended coverage; but permanent policies are always something to consider when deciding on different types of life insurance! 

Check out my video below, part 7 of my series on retirement planning, for more insight into permanent life insurance policies. 

Transcript

From the day you buy it, it’s going to last all the way until you die, or possibly at age 110 or 115, some policies go to.

Now the difference is, you know that between now and the end of your life, you’re going to die. It’s designed that way. So, if you’re going to rent that death benefit for your entire lifetime, it’s going to cost more than if you were renting for just a short period of time.

The chances of a 30-year-old healthy person dying within the next 10 years is very slim. So, renting that term insurance for 10 years is relatively inexpensive. But now imagine that same 30-year-old is not healthy. In fact, not healthy at all. Higher likelihood that they were to die within those 10 years.

So, it is going to be more expensive, right? Kind of makes sense.

Well, also, if you have a permanent policy that you buy today and it’s going to last for your lifetime, the insurance company knows it’s going to pay out the death benefit at some point in time. So that’s going to cost you more as well.

For more answers to common retirement planning questions, check out the rest of the Question Mark: Retirement Planning series.