Advantage to permanent insurance over term insurance or vis versa?

[Mason]

Is there any advantage to permanent insurance over term insurance or vis versa? I mean, basically it looks like term is the better deal because I can buy more death benefit for a lot less money, but permanent insurance gives me money with a death benefit.Does anyone have any opinions about what is really the better deal long term?

[disneysteve]

In almost every case, term insurance is better. It gives you a much larger benefit for much less money. The rare exception is when there are estate planning issues in which case permanent insurance can have some benefit but that doesn't apply to 99.9% of the population.

Keep insurance and investments separate. Buy term and invest the rest.

[jpg7n16]

In almost every case, term insurance is better. It gives you a much larger benefit for much less money. The rare exception is when there are estate planning issues in which case permanent insurance can have some benefit but that doesn't apply to 99.9% of the population.

Keep insurance and investments separate. Buy term and invest the rest.

Agreed

Unless you need the insurance for a business arrangement or have some lifetime need (like estate taxes/liquidity)... term is always better.

Like Steve said, figure out what the premium would be for a term policy for the amount of coverage you need, and a whole life policy for the same amount. Then invest that difference every time you make your insurance payment. You'll come out way ahead of any "cash value."

[InsuranceGuy]

The other issue to consider is insurability. If your health later declines, you may not be able to purchase permanent insurance should you need/want it. However, term makes sense in most cases - just not all.

[jIM_Ohio]

With Permanent Insurance, you need to differentiate between a universal life, whole life and similar options (You don't buy a permanent insurance policy, you buy a universal life, a whole life or other product). Same way you don't get a mortgage, you get a 30 year fixed or 15 year fixed or 5/1 ARM. Each type of mortgage has various features and various pros/cons.

With permanent insurance, what they all have in common will be
1) they insure person until death
2) they payout a benefit at death
3) if premiums are paid, they stay in force until death
4)The benefit at death is either one of two values:
a) the value of the insurance
b) the value of a sub account
(whichever is higher)

compare this to term policies
1) they insure a person for a specific amount of time
2) they payout a benefit if a person dies within that time period
3) if premiums are paid, they stay in force for only a specific time period
4) the payout is the same in all cases- the value of the policy.

The permanent insurance policies exist to solve problems. Not all financial problems can be solved with term. In addition not everyone qualifies for term. Some cases for permanent insurance are very specific niches. If you fall into one of the niches, they make sense.

Examples
1) Both spouses depend on one retirement income, and most of that income comes from a pension from one of spouses. It is possible the pension is not transferable on death (meaning if the spouse which collects pension benefit dies first, there is a HUGE risk that other spouse becomes destitute- solution is get a permanent insurance policy on spouse with pension benefit.
2) There is significant wealth parents want to pass on to family, and because of gift tax exclusions it is difficult to gift away. Therefore a person could take out a permanent insurance policy (for a lot of money) like $5 M dollars, then fund the insurance policy so the cash value is higher than the $5 M, and the policy then pays out the higher amount on death (tax free) to other family members.
3) An insurance agent showed me a table where if we paid 30 year term premiums, then needed insurance that 31st year, it was cheaper to fund a permanent policy for 31 years (at a low benefit amount) and let it build up cash value so in the 31st year it had the level of insurance we needed. He compared this to rates a 55-65 year old would pay for term insurance in 31 years, and the permanent policy now was cheaper than term would be then. This is a good way to fund funeral costs (for example).

[financebanter]

Re: Advantage to permanent insurance over term insurance or vis versa?

In almost every case, term insurance is better.

[TheBudgetCoach]

3) An insurance agent showed me a table where...

I bet they did jim_Ohio. They're trying to sell you a crappy whole life policy. Never combine insurance and investments. Buy Term and invest the rest. The agent makes money and you get screwed - 99.9% of the time with a whole life policy. I don't care what table they showed you. The "Table" is designed to sell you a horrible policy so they get paid. The very fact that it's so confusing tells you not to invest in it. Most people who have them are trying to get out of them. Those same people don't even understand what the hell they've got anyway. Buy Term. Period.