In making the choice between buying term or permanent life insurance, term life comes out on top for most families.
First, it's important to understand the difference between the two.
Term life insurance is temporary coverage that provides a financial safety net for your dependents over a time period between one and 30 years.
Permanent life insurance, such as whole or universal life, provides coverage for your entire life, and has additional features that make it far more expensive than term.
If you need life insurance quotes for a policy to cover a specific time period or specific debts, you'll probably want to go with term life. Here's why.
1. Term life is more affordable.
Term life is available for a fraction of the cost of permanent life insurance because it's temporary. A healthy 30-year-old man who doesn't smoke can buy a 20-year, $500,000 term life policy for as little as $245 a year, according to NerdWallet's study of average life insurance rates. The cost for a healthy 30-year-old woman for the same policy would be just $209 a year.
A similar universal life policy could cost $2,000 a year for men, $1,700 for women; and in the initial years, a similar whole life policy could cost nearly $5,000 a year for men and $4,400 for women, according to a NerdWallet sampling of rates.
2. The term length can match your needs.
You can choose the term to match the amount of time you need coverage, whether five, 10, 15, 20, 25 or 30 years. The most common type of coverage is called level-premium term life, which means the premium stays the same throughout the term.
To decide how much coverage to buy, add your obligations, such as debts, household expenses and support for children, and subtract any savings and other life insurance coverage you have.
Choose a term to cover the years when your loved ones will need your support. If you have young children, for instance, you might buy a 25-year term life policy to support them through the years they're growing up and to provide money for college.
3. The policies are easier to understand.
Term life insurance pays a death benefit to your beneficiary if you die while the policy is in force. Once the term ends and you stop paying premiums, the policy ends. Permanent life insurance, in contrast, is more complicated because it has an investment component. You'll need to evaluate the policy carefully to make sure you know what you're buying.
4. Quote comparisons are available online.
The simplicity of term life insurance makes it easy to compare quotes from insurance
companies using an online tool such as NerdWallet's.
If you want to buy a permanent life insurance policy, you should consult with a financial advisor. Permanent life insurance policies come in many varieties with different methods of accumulating cash value, which makes it hard to compare offerings from different companies.
5. Regrets? Term life can be converted to permanent life insurance.
- Make sure converting is an option on the term policy before purchasing.
- Review the types of permanent policies that will be available if you convert.
- Keep track of the deadline for conversion. Sometimes the opportunity ends years before the policy expires.
Permanent life insurance is a lifelong commitment: You wouldn't want to convert to temporary coverage when you've already paid thousands of dollars into the policy.
Although permanent life insurance fills an important need for some consumers, term life is the way to go if you need life insurance temporarily. The conversion option gives you added security, knowing you can convert to permanent coverage if your needs change.
Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: bmarquand@nerdwallet.com. Twitter: @barbaramarquand.
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