The Big Myth On Life Insurance Costs:
I Can't Afford It
One of the biggest misconceptions people have about permanent life insurance is that it's not affordable. That's why many people, especially those who are young and have limited financial resources, lean toward the purchase of term insurance.
What's the difference?
Term insurance is temporary. Most people buy term insurance to cover financial obligations that will disappear over time, such as a mortgage, business debt or the cost of raising children through their college years. And while term insurance is—initially—a more affordable type of insurance, its premiums can increase over time.
Permanent life insurance (which includes whole life insurance) is coverage for your lifetime. Permanent insurance premiums, on the other hand, are initially more expensive, but the rates for many plans are guaranteed to never increase. Permanent insurance also offers more than just a death benefit. With a permanent policy, as you make premium payments, you build equity in the policy (known as cash value), which you can use at any time to help you meet other financial priorities.
So which is a better deal in the long run? In Northwestern Mutual's recent webcast A Powerful Asset: 5 Benefits of Life Insurance While You're Living, Regional Director of Financial Planning Greg Balian compares the long-term cost of term and permanent life insurance.