The two defining features of permanent life insurance are the longer (whole life) duration and cash-values attached to the plans. Naturally, these features come at a higher premium compared to temporary insurance. Given that life insurers and insurance agents prefer to sell permanent coverage to clients, it is good to ask whether the purchase is worth it. As with any sale, you should get value for money.
The nature of coverage
The reason you want coverage is vital in deciding whether a permanent life insurance is worth the sacrifice. If you have a temporary coverage need (mortgage protection or coverage for your life until your child finishes college), then temporary insurance might be better suited to you. Permanent coverage is a waste of money unless there is a long-term need. If you only desire to cover final expenses or plan to use your life policy as part of your estate planning strategy, then permanent insurance is worth it.
The best way to determine if permanent coverage is worth it can also be indexed to how much you can comfortably afford to pay. For instance, if you need $200,000.00 coverage but you cannot afford the premium on a Whole Life or Universal Life plan, then purchasing the coverage is not worth it. This is because it is likely that you would surrender the policy. Conversely, if you decide to take reduced coverage at a lower premium, you are not getting the coverage you want or need.
Pros and cons
It is very important to consider the merits and demerits of permanent coverage independently to see if there is a fit between your life insurance need and the policy. Some of the merits of permanent life plans are as follows:
* Longer coverage period
* Forced savings through cash portfolios attached
*Non-forfeiture options available
* More optional supplementary benefits
* Policy does not lapse easily
While there are several benefits, you must also consider the downside of permanent coverage:
* Higher premiums
* Significantly lower death benefits than temporary insurance at the same premium
* Could become superfluous when your need for life insurance diminishes
* Surrender charges
* Having to “borrow” your own money through policy loans with some permanent life policies
Not all life policies are equal and it is likely that permanent life insurance can work to a greater or lesser extent for several persons. Often, temporary insurance might be better suited for a person’s needs. However, there are specific circumstances under which permanent plans are very useful. These include covering basic final expenses and to reduce the burden of estate taxation on beneficiaries of your estate. Remember that if you buy a policy that you do not really need, it could never be worth it. In light of that, take time to assess your short to long-term life insurance need, consider your budget and the pros and cons of permanent coverage before you opt to take a permanent life policy.