The term versus permanent life insurance fight is an even one with both schools of thought having many takers. There are financial advisers who belong to a third camp – that is they believe in both equally, and would like to judge the merits and demerits of the two on a case by case basis.
You can think of term insurance as leasing a car. You lease it for a fixed period, pay the rent for as long as you keep it and once the lease period is over you hand over the car and go your own way. The car is not yours to keep and you do no get anything while handing it over. You keep the car only as long as you want to and it's definitely cheaper than buying your own car.
Similarly, you get yourself a term insurance only for a period of time you think you need to be protected. Let's say you are a young family person with kids. The next 25 years appear filled with things like mortgages and educational expenses. It's crucial that should anything happen to you within this period, there's a back up to bail out your family. This back up is the term insurance.
But why insure for only 25 years or any fixed period for that matter? Probably because you see your life becoming free of obligation within that period. Your kids would have finished college, the house would be mortgage free, in short you anticipate a situation where should anything happen to you, your family will be fine without a back up.
It is perfectly justified if you do not feel the need to put up money for protection outside that period. However, you must remember that term insurance is pure protection. It has no cash value; if you live to see the term through, there's nothing that you get.
Now let's look at permanent insurance. This stays in force as long as you live. After your death, your nominee is guaranteed the amount insured. But remember that life or permanent insurance comes with high premiums. This is because a part of that premium goes into building a savings component, which is the cash value of our policy. This is a little something that you can draw from in times of need. People borrow from this to pay for their kids’ education or meet a sudden expense. You can even convert it into retirement fund.
The other thing to keep in mind is that not only are you covered for life with some savings thrown in, you also get tax benefits on these savings. Your nominee gets the insured amount free of tax too! Both term and permanent policies have their pros and cons; you just need to choose the one that suits you best. So talk to an insurance adviser by all means, but listen to your own heart. Whichever policy you opt for, you stand to gain.
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