What type of life insurance is the right choice for you?

Life insurance’s primary purpose is to protect your loved ones financially if you were to die during the policy term. According to LIMRA research, one out of three households would have financial difficulty within one month of a primary wage earner passing. The death benefit helps to cover costs related to the funeral, mortgage, etc., and allows your family or other beneficiaries to retain the same standard of living as before.

There are two main types of life insurance policies: term life insurance and permanent life insurance, which are different in a number of ways, and both have their pros and cons. Since we, at Kwiskure, know that choosing the right type of life insurance can be complicated, we have taken the liberty of comparing these two life insurance options for you in today’s article.

Term life insurance vs permanent life insurance

Your life situation and your needs will take a crucial role in determining what type of life insurance is right for you. Your age, health, budget, and many other factors have a significant role in the process, and for that reason, let us quickly explain the main differences between term life insurance and permanent life insurance.

Term life insurance

• Provides coverage for a specified term (usually 5, 10, 20 or 30 years).
• Benefits are paid out only in the event of the insured’s death (unless other benefits are obtained as well).
• Term life insurance is significantly less expensive than permanent life policies.
• Premiums will become higher with age upon renewal time (should the policyholder decide to renew).

Permanent life insurance

• Provides coverage for a lifetime, and always results in the payment of benefits.  
• Permanent life insurance is more expensive but premiums stay the same throughout the duration of the policy.
• Clients can opt out of permanent life insurance without losing all of the paid premiums.
• Part of the premium can be used for investments, resulting in the payment of benefits at a higher level (eg. insurance with an investment fund).

If after reading the above life insurance comparison you are still unsure about which option is right for you, then the next part of this article should be able to provide more in-depth answers to all your life insurance questions.

Consider term life insurance if…

You have a limited budget but are in need to secure your family’s future. Since term life premiums are not too expensive, and the insured amount can be high, we’ve seen many young families opting for term life policies, which offer them security before they have time to accumulate their own assets and savings.

Consider obtaining term life insurance if you are currently enjoying good health as this is one of the most important underwriting factors for term life insurance. Smoking and age also play a huge role in premium calculations, as these factors increase the risk of chronic conditions.

You need financial protection for a specific period of time. A term life plan lets you match the length of the policy to the period of time you need it. This policy can be used as an extra layer of protection against new debt or mortgage payments, or as an assurance for your children’s future college fund.

Consider permanent life insurance if…

You can pay higher premiums to get a guaranteed benefit payout for your beneficiaries. A permanent policy pays out the secured amount no matter when you die - tomorrow or in 80 years time.

You want to get what you paid for. The great advantage of a permanent life insurance policy is that even if in its character it acts as inheritance, the paid benefit is free of the inheritance tax and is also free from seizure by creditors.

You want the freedom of using some of your accumulated funds at any time. Many permanent life policies come with savings or investment elements, and you can draw tax-free upon your cash benefit portion, even before the policy has ended.

You look for stability. Permanent life insurance premiums remain the same no matter how old you are, while term policy premiums can go up substantially every time you renew it.

Final advice from Kwiksure

It’s important to keep in mind that even though both of the discussed types of policies are under the same umbrella of life insurance, the reasons for purchasing the aforementioned plan types are, and should be, different.

There are many different types of life insurance available on the market. Life insurance policies differ on many levels and can be matched to your needs based on benefits, payout schemes, premium increase or decrease over time, exclusions, and a vast array of other factors. To learn more, contact our team or compare life insurance quotes online with our free quotation tool.

And yes, even though Kwiksure is best known for motor insurance in Hong Kong, we also help our clients secure a range of other insurance solutions such as travel insurance, home insurance, fire insurance, and many other policies.