Permanent or Term Life? There Is No One-Size-Fits-All Answer

Different clients have different needs. It’s a simple truth, and the main reason the advice and services of insurance and financial advisors is so valuable to American families. How many times have you picked up a magazine or newspaper and read a piece by a personal finance personality advising all of his or her readers to avoid permanent life insurance – to buy term and invest the difference?

If only life was so simple. But in the real world, different people and families, unsurprisingly, have different goals. As NAIFA President Juli McNeely says, “We would never diagnose health issues by reading a book and caring for ourselves. Why would we want to handle our financial health without seeking the assistance of a professional?”

Back to the case of term versus permanent life insurance – a good advisor can tell a client there really shouldn’t be a “versus” in that statement. Term and permanent life are entirely separate products with different purposes. Term helps a client mitigate a specific financial risk that exists for a finite period of time. Permanent, on the other hand, can be a part of a life-long financial plan.

A professional advisor will explain how permanent life insurance often:

  • Provides life-long coverage with a guaranteed payout.
  • Accumulates cash value tax-free.
  • Pays dividends.
  • Allows policyholders to take out loans against policy cash values at low interest rates, without credit checks, and for any purpose.
  • Encourages policyholders to put money away for the future. (How many people who go the term route actually do invest the difference?)
  • Provides opportunities to obtain additional life insurance coverage later in life without a medical clearance.
  • Can include long-term care or disability insurance riders.
  • Can include investment components.
  • Can be structured to fit within a client’s budget.

Insurance and financial products can be very complex and confusing. There are very few one-size-fits-all answers to financial questions. Any advice columnist or television, internet or radio personality who does not urge consumers to meet personally with a financial advisor does their audience a great disservice.

Buying term and investing the difference may make sense for some consumers. For others, it certainly does not. NAIFA members, and other professional advisors, help consumers determine what financial and insurance strategies are best suited to their personal needs.