What is the difference between Term and Permanent life insurance policies?

If you own a house or a car, then you probably also have home insurance and car insurance. Did you spend much time considering whether you needed to invest in either of those products?

My guess is that you didn’t because in Ontario car insurance is mandatory and most of us don’t think twice about whether or not to insure the things we’ve worked so hard to buy.

If most of us don’t debate the need for car or home insurance, why then do we debate the need for life insurance? The answer is simple – life insurance is often seen as an unnecessary (and unaffordable) expense. But the reality is just the opposite. Protecting your family from the unexpected is a necessary expense. And since with life insurance you choose the coverage that fits your life and fits your budget, it’s only as expensive as you make it.

There are two types of life insurance – term insurance and permanent insurance.

Term insurance is like renting an apartment. When you rent, you pay a set amount of money every month for a nice place to live but when the rent is too expensive, you move and have nothing to show for the money you spent.

Term life insurance works the same way. Your protection is guaranteed for a set period of time (usually 10 or 20 years) and at whatever amount you deem necessary. Your premium remains the same throughout the term only to rise when the term renews. When the contract expires or becomes too expensive, you have nothing to show for your money. But during the term, you had comfort and peace of mind in knowing that should you die unexpectedly, your family would be able to cover the costs associated with your death and carry on living the lifestyle that they had come to expect.

Permanent life insurance starts off more expensive per month than term life insurance. But with permanent, or whole, life insurance, your monthly premiums never change. This type of insurance stays with you your whole life and allows you to accumulate money in a risk-free environment.

If term life insurance is like paying rent, then permanent life insurance is like paying the mortgage on a house. Your payments may be higher, but they are going towards accumulating wealth.

When trying to decide which type of insurance is best for you and your family, start by figuring out what you want the insurance to do for you. Next, decide what you feel comfortable spending every month.

Remember, there’s no such thing as bad insurance or too little insurance – buy what you can afford and it will be better than no insurance. Investing in life insurance – any form of life insurance – is one of the most important investments you can make for your family. Why? Because death is the only thing that can’t be recovered from.