Term or Perm Life Insurance; What Are Consumers Buying

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InsureMe announces results from life insurance study.

While more people are shopping online for insurance, life insurance appears to be a more complex product than other policies.

InsureMe, an online insurance shopping service, announced results from a study that notes more shoppers opt for term life insurance over the permanent, cash-value choices.

According to data aggregated by InsureMe in 2007, 47 percent of their shoppers chose term life insurance compared to the 31 percent who chose permanent types of life insurance.

The findings also indicate that consumers are becoming increasingly uncertain about which type of life insurance to purchase. The percentage of people who have indicated that they were unsure which kind of life insurance policy they wanted increased from 16.4 percent to 20.7 percent over the last five years.

Both findings could be the result of consumer confusion when it comes to the often convoluted subject of life insurance, notes InsureMe statistician Peter Deusterman.

"While term insurance sells itself on simplicity and flexibility, permanent life insurance is anything but straightforward. So instead of delving into the minutia, consumers may be just settling for term life insurance," Deusterman said. "While more people are shopping online for insurance, life insurance appears to be a more complex product than other policies."

By definition, term life insurance provides life insurance for a set period of time (the term) and only pays a death benefit when the insurer dies during that period of time. It is usually purchased by people who are looking only for a death benefit-- a way to ensure if they die, inheritors will be taken care of. The rates tend to increase as a person ages, unless a 'level term policy' is purchased. There are other variations to term life, but the gist is that it is a direct way to provide a payment to the designated beneficiaries. The purchase decision for someone getting term insurance would be to find the lowest premium with the highest payout desired.

Permanent life insurance, on the other hand, is much more than just a death benefit. Permanent insurance really should be considered a financial instrument that includes a death benefit payout, a tax savings strategy, and a savings plan. In essence, the plan for permanent life insurance should be designed to provide a death benefit payout (corresponding to the needs of insured) combined with a tax savings instrument that will provide the insured with an income stream in later years in life, usually at a lower tax rate. Because of the potential increased cash value and earnings associated with permanent policies, they are usually more expensive than their term life counterparts.

A Google search for "life insurance" will produce various, often conflicting, articles attempting to explain and simplify life insurance products, many simply telling consumers to choose the cheaper term policy and invest the savings. And while this is good advice for most people, permanent policies are a wiser alternative for some people.

Permanent life insurance can be likened to buying a treadmill: If you buy the treadmill, but it just sits in a corner and you don't use it, you've wasted your money. Thus, those planning on buying the more powerful permanent policy should be involved in planning how to get the most benefit from the policy.

So, who should take another look at permanent life insurance? Usually those who are searching for tax savings. People who can't utilize Roth IRAs, the tax-sheltered saving plan of choice, are good candidates. High earners frequently cap out their 401k contributions and are also good candidates for permanent life insurance policies.

Like any investment, a permanent life insurance policy requires some research on the part of the consumer. There are details in the policies to watch for. For example, a person would look for the no-lapse guarantee to ensure their policies will always be intact, especially with permanent life policies.

Shopping for life insurance online is a good way to get the process started but purchasing the actual policy might be best made with an insurance agent or financial planner to explain the benefits of each policy.

About InsureMe
InsureMe, an Englewood Colorado-based company., links agents nationwide with people shopping for insurance. For more information visit InsureMe.com, and check out the InsureMe insurance blogs to find tips for consumers, agents and affiliates.

Contact:
Lori Reed
720 548 6178

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LORI REED
InsureMe
720 548 6178
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