Choosing the Right Product

Term Vs. Permanent

Product selection can play a critical role in the success of a life insurance portfolio. With a wide range of products, features, and riders available, navigating the options can be complex. Selecting the right product for each planning objective is an important step in building a well-designed portfolio. Understanding the differences and evaluating the trade-offs to make informed decisions can help ensure each policy is aligned with its intended purpose.

When reviewing a client’s objectives, it’s important to evaluate if each need is either temporary or expected to continue for the client’s lifetime. This distinction can help determine whether term or permanent insurance is better suited to the plan.

Permanent insurance may be appropriate when coverage is expected to extend beyond a traditional term period, the duration of the need is uncertain, or the client wants benefits beyond the death benefit. It can provide lifetime coverage for objectives such as liquidity, wealth transfer, estate equalization, and business succession, while offering a more predictable long-term premium commitment when compared to repeatedly purchasing or converting term coverage.

Certain permanent products can be structured with a limited premium-paying period, allowing the client to complete funding over a shorter period while maintaining long-term coverage. If a permanent policy outlives its original purpose, repurposing or exit strategies should be considered, such as reducing coverage, accessing cash value, exchanging the policy, or surrendering it for its available cash value.

Term insurance may be appropriate for temporary needs that are expected to end at a specific point, such as income replacement or the repayment of an obligation. Term insurance can provide the required death benefit at a lower initial premium than comparable permanent coverage. This may allow the client to address a temporary insurance need without committing to the additional cost associated with permanent insurance. If circumstances change, some term policies allow the policy to be converted to permanent coverage without new medical underwriting, subject to the policy’s conversion terms. Unlike permanent insurance, term insurance does not accumulate cash value. As a result, surrendering a term policy generally does not provide a cash-value benefit.

The product decision should ultimately begin with the purpose and expected duration of the insurance need. The appropriate product should then be evaluated based on the client’s objectives, time horizon, premium commitment, financial circumstances, and the specific features and risks of the policy being considered.

We welcome any questions or opportunities to assist you or your clients in achieving identified goals. We take pride in serving a select number of families, businesses, and charitable institutions each year, and we look forward to hearing from you.