Many people only think of life insurance in terms of the monetary benefits it provides when a person passes away,
​and for this reason most don’t realize that life insurance serves many other purposes and can even be used to your advantage during retirement. 

Here’s a quick review of the two basic types and respective purposes of life insurance.
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• Term - the defining feature of term life insurance should be thought of as having coverage for a specific number of years- a term; or can be considered as a short term of coverage meaning a short amount of time.  Term policies are typically sold in years of coverage of 10, 15, 20 or 30 years.  Term policy costs definitely increase as you age. 

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• Permanent - this type of life policy offers coverage that last your whole life.    This type of coverage does not expire and for this reason is expected to pay a benefit at whatever age the insured person happens to pass away.  Whole life policies are designed to be paid at a level premium for the insured’s lifetime.   Whole life policies typically build cash value or a cash reserve.  The purpose of this cash reserve in the policy is to ensure that the full death benefit can be paid out, regardless of how long the insured person lives.

So Which Is Better?
It may not be a situation of which is better- Term or Permanent coverage- rather, once you understand the reason you need life insurance, you should understand they each have specific uses. 

Here are some uses of each:

• Term: If you pass away and have a spouse &/or children depending on your income to make ends meet.  This may include paying off a mortgage, having funds to pay for a child’s college, or just day-to-day living expenses for the ones left behind.

 

• Buy-Sell Agreement:   If you are a business owner, funding a buy-sell agreement with Life insurance ensures the company itself or another owner of the company has monies to keep the business up and running, in the event an owner unexpectedly passed away.  Each owner would have a policy on the lives of the others to off-set business expenses at one of the owner’s died.  

 

• Security/Collateral:  Life insurance can be used as security or collateral against a personal loan.  A term policy is typically sufficient since the loan should be paid-off within a certain amount of time, so the goal is to match the amount of time of the loan to the number of years in the term.  Once the loan has been repaid, the insurance can be canceled. 

 

• Permanent Life-Cash Value:  There are actually two primary types of permanent life insurance, Whole and Universal life, and both types can build cash value.  It’s this cash value that serves as a source of equity to the policy holder.   

 

• Living Benefit:  This seems to be the most unexpected trait of permanent life insurance, especially if it has built up a good amount of cash value.  In the situation where substantial amounts of cash value are in a permanent policy the policy owner can exercise a loan or a  withdrawal  to themself thereby setting up a stream of income during retirement. This life insurance as a retirement strategy works best for high wage earners.