This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

6 Steps to Figuring Out: Term Life or Permanent Policy?

NEW YORK ( TheStreet) -- Hey, here's a deal: Convert your no-frills term life insurance policy to a permanent policy that could add decades of coverage and, on top of providing a death benefit, function as an investment for retirement!

If you've had a term life policy for a while, you may find your agent or insurer pushing you toward this kind of move.

But is it such a good deal? Well, it's one of the many financial options a responsible person might consider, but it's far from a slam-dunk. Some of the alternatives might be cheaper and more flexible, as well as more profitable.

A term policy, typically lasting 10 to 20 years, provides a set death benefit if the insured dies during the coverage period. It works just like car or homeowner's insurance: Pay a premium, get coverage; stop paying, either because you don't want the policy anymore or the term has ended, and you don't get coverage. Simple.

With term, there's no investment component or "cash value" to draw on, but term life is very cheap. You might get a $500,000 death benefit for $100 to $200 a month, depending on your age and health.

Permanent policies have no end date -- they pay the promised benefit no matter how long you live. Many types build up cash value as a type of investment, and after a number of years earnings on this asset pay the policy's premiums. But you pay a lot for this. Premiums can be 10 times what you'd pay for a term policy with the same death benefit.

Consider this opportunity recently presented to a man in his early 60s. He had four years to go on a 20-year term policy with a $500,000 death benefit and an annual premium of only about $1,500. His insurer offered a chance to convert this to a permanent policy that could provide lifetime coverage even if he lived to 100, while his current term policy would terminate at age 66.

But the premium on the new policy would be about $17,000 a year -- 11 times what he was paying on the old policy. Would the extra years of coverage and chance to build cash value be worth that much?
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.44 0.00%
FB $87.28 0.00%
GOOG $523.40 0.00%
TSLA $280.02 0.00%
YHOO $39.38 0.00%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs