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The first and most important decision you must make when buying life insurance is: term, permanent or a combination of both? Making a poor choice about which life insurance policy to purchase can affect your assets, your dependents and even yourself.

The difference between a term life policy and a permanent life policy is the length of time the contract covers. Term policies are meant to be renegotiated or renewed periodically; permanent policies are long-term agreements meant to cover a significant timeframe. The primary difference to you is the price of each type of agreement, and your overall cost versus overall payout (if any). A term policy will only award your beneficiaries money in the event that you actually die during the term of the contract; if and when you live past that date, you cannot rollover your benefits or get any cash back.

Permanent life policies, on the other hand, will not only offer your beneficiaries cash in the event that you die, but also some cash value back to you if you do survive the end date. In some cases, you can actually get a great deal more money back from your policy than you spent in the first place. At the end of the permanent contract, you simply cash in your policy to get refunded and start again with another policy or keep the money for your will.

This information may make the choice seem fairly straightforward in favor of permanent policies versus term policies, but the former are much more expensive to maintain each month. It has been reported that “most people drop their policies within the first 10 years,” which means that due to an inability to continually make high payments on permanent life insurance policies, clients simply stop paying and drop their coverage. In these cases, it would have been better to negotiate a term policy so that coverage remained and payments were more affordable. Not pursuing a better option means that most families are left without any life insurance coverage at all.

If you want to protect your family against your unexpected death, you are usually better off with term life insurance rather than whole life. Term usually provides the most protection for your family at the most reasonable cost. The key to finding the right policy for you and your dependents and beneficiaries is to honestly assess your budget and make the right coverage decisions. Spending too much could leave you too financially stressed to continue paying your premiums, leaving both you and your beneficiaries with nothing. Term policies could, on the other hand, be a waste of money if you can in fact afford the total permanent coverage.

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