- Term insurance is like an apartment – it’s like paying rent. It’s inexpensive at first but there’s no return.
- Permanent insurance is like buying a home. It’s more expensive at first but has the security that equity in a home provides.
When you opt for term insurance, think of it as paying rent: if you stop paying the premiums, your coverage ends. In contrast, permanent insurance is more like owning a home. It allows you to build equity over time. If you accumulate enough cash value within the policy, you could potentially stop paying premiums and still remain covered by utilizing this equity.
Term insurance is purely for protection, offering no equity. Essentially, you’re investing in a safety net for a specified term without the ability to build value. Permanent insurance, on the other hand, lets you contribute to equity with each payment. This accumulated value is versatile; you can borrow against it, use it as collateral, or even enhance your retirement income with it.
The cost of term insurance typically increases over time, mirroring how rent tends to rise. Every renewal period might bring higher premiums as you age. Permanent insurance, while initially more costly, offers a greater long-term return. Its cost is fixed for life, providing not only a consistent expense but also a lasting benefit.
Term insurance serves well for short-term financial protection needs. Permanent insurance, true to its name, offers a lifelong solution, evolving with you as your financial landscape changes.