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Term Life or Full Life?

Life insurance planning can be a daunting task. Not only is there the question of how much insurance, but now the emerging question is what kind. Life insurance comes in many different varieties including term life, universal life, whole life, and variable life.

Universal life, whole life, and variable life are all life insurance products that are designed to pay a benefit at your death regardless of the time of death. For example, these policies most commonly pay a benefit when someone has reached an older age and dies of natural causes. These policies would also pay a benefit if the insured were to pass at any given point in their life.

Term life is an insurance product that is designed to pay a benefit for only a specified period of time. For example, one can purchase a 10 year term policy. In this case if the insured were to pass within the 10 year period from the date of purchase the policy would pay a benefit. If the person were to die after the ten year period no benefit would be paid.

It is no question that term life insurance is an inferior product to some of the other insurance products that cover your life in its entirety. However, the price difference between a “full life” product versus a term product can be staggering. Should you take a gamble and purchase a lot of term insurance when you have a young family and chance it after the term expires? Should you reduce your income in order to purchase a “full life benefit?” The following are some guidelines to follow when purchasing life insurance that may help you make the correct decisions. Of course you are going to want to consult your insurance professional before making any decisions.

  • How is your health? What is your family history? - If you have a poor bill of health, you are over weight, or have lingering health problems; it would be better for you to consider a full life product. The reason for this is that once you obtain a full life product, no one can take it away. No term will expire. If you have a poor health history or your family has a poor health history the odds are against you. You certainly don’t want to be at a point where your term insurance is ending and you are uninsurable.
  • Do you have liabilities that are going to decrease within a time frame? - It is very popular for homeowners to purchase term insurance concurrent with their liabilities. For example, a homeowner with a $100,000 mortgage over 30 years would purchase a 30 year term life policy for the $100,000. Another example would be your children. Most people take out term policies to cover their family when they are young. The term will eventually expire, but by that time the kids will have moved on (hopefully).
  • Pension replacement – Full life products become especially important in the years after children. Your spouse may depend on your income or at least be used to the income. If you pass away and all of your terms from your younger life have expired, your survivors receive nothing. Think about it right now. If your spouse passed away, could you live comfortably without their income?
  • What can you afford? – This is the big question. If you can not afford a “full life” product, it is fruitless to consider it. The real need is the insurance itself. No matter how you get it, be it in a term policy or a full life product, you need it!

For most people the answer to this question is a combination of both term and full life. At a young age the full life products are less expensive. Purchasing a small full life policy and augmenting it with term can serve as a good foundation for any financial plan. With new products entering the market every day it is always good to speak with a registered insurance professional!