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Combining Term and Permanent Insurance
The fact is, combining term and permanent insurance may be an effective strategy for some people.¹ Term Life Insurance Term life insurance is "pure" insurance. The policyholder pays premiums to an insurance company for a specified period. If the policyholder dies within this period, the insurance company pays his or her beneficiaries the face value of the policy. When people are young, term insurance can usually provide the same death benefit as other types of life insurance at a much lower cost. However, term insurance premiums generally increase with the age of the insured, because the likelihood of dying increases with age. Permanent Life Insurance As the name implies, this type of "cash value" life insurance is permanent, as long as you pay the necessary premiums to keep the policy in force. Part of the premium goes to the insurance company for the death benefit element of the policy. In addition to providing a death benefit, permanent life insurance policies have the potential to build cash value. Premiums generally remain fixed for the duration of the policy, rather than increasing to match the increased risk of death. Combined Strategies Some people may want the benefits of permanent insurance, but can't afford the higher premium costs. For these people, combining term and permanent insurance may be a sensible strategy to consider. For example, if there is a substantial income difference between spouses, it may make more sense to cover the primary wage earner with term life insurance and then cover the secondary wage earner with permanent life insurance. This would give the family some protection if the primary wage earner were to die, without involving a hefty premium. Meanwhile, the permanent life insurance policy on the secondary wage earner would have the potential to build cash value and provide additional security for the family. Both term and permanent life insurance can play a role in your financial strategies. It's important to assess your insurance needs and purchase the most appropriate coverage for your family's specific situation. 1) The cost and availability of life insurance depend on such factors as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. |
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Many
people are under the impression that they can buy term insurance or permanent
insurance — but not both.
