Term or Permanent: Which is best for you?

Generally speaking, there are two categories of Life Insurance, term life insurance and permanent life insurance. Often, the solution is a combination of both, since most people have a need for both temporary (term insurance) and lifetime (permanent insurance) protection.

To help you decide, consider five basic factors:

• Death benefit
• Duration of coverage
• Premiums
• Cash value
• Net cost of insurance

Death Benefit

Permanent life insurance provides a death benefit for as long as you live.

Term life insurance provides a death benefit for a stated period of time.

Duration of Coverage

The longer period of time that insurance protection is needed, the more consideration you should give to permanent life insurance. For short-term needs, term life insurance may be appropriate.

Examples of permanent needs are:

• Use of death benefit to pay bills or provide money for loved ones
• Use of death benefit to pay final expenses
• Use of death benefit to provide money for a favorite charity
• Use of death benefit to pay estate taxes
• Fund a business buy/sell agreement or provide key person protection

Examples of temporary needs are:

• Use of death benefit to pay educational expenses
• Use of death benefit to pay off home mortgage
• Use of death benefit to pay off an automobile loan

Premium

Permanent life insurance premiums are generally level and payable for life.

Term life insurance premiums will increase over time, are payable for a specific period of time and generally increase at each renewal.

Cash Value

Guaranteed cash values can provide money later to help with temporary needs or emergencies.

Permanent life insurance accumulates guaranteed cash values and may be eligible for dividends:

• The growth in cash values is tax-deferred under current federal income tax law.
• You may borrow against the cash value as a policy loan at the current policy loan interest rate. Borrowed amounts reduce the death benefit and cash surrender value.
• Amounts withdrawn that exceed the cost basis of the policy are federally income taxable.
• Dividends are a return of premium and are based on actual mortality, expense, and investment experience of the company.
• Dividends are not guaranteed, since actual experience is not known in advance.

Term life insurance does not accumulate cash values, nor does it earn dividends.

Net Cost of Insurance

The net cost of insurance compares the premium payment and the guaranteed cash value. You get the net cost of insurance by subtracting the total premiums paid from the guaranteed cash value.

For example, compare, over a 20-year period, a term life insurance policy for a 35-year-old male non-smoker and $100,000 worth of coverage with a permanent life insurance policy of the same criteria.

How to choose

Together, you and your State Farm® agent can assess your Life Insurance needs to help you choose the coverage that is best for you.

Contact your State Farm agent for additional information or if you have any questions. They can also give you details on cost, coverage and restrictions.

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