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It’s not term OR perm, it’s term AND perm

By: Adam Bezman, Senior Director, Product & Innovation

Too often when we look at life insurance options in the workplace, we look at the options as a binary decision: you can have permanent life insurance or you can have term life insurance. But it doesn’t have to be that way. Combining term and permanent life insurance can be a more effective way for most policyholders to get the protection they need.

A look at term and permanent coverage

Worksite term and permanent coverage can each provide valuable protection.  Understanding the differences between them is important.

Permanent life insurance:
  • Often compared to “owning” life insurance because the coverage is designed to last the lifetime of the policyholder
  • Premiums are level and policies are guaranteed renewable
  • Coverage is portable without any premium increases; policyholders can easily keep the same  coverage for the same price even if they change jobs
Term life insurance:
  • Often referred to as “renting” life insurance because it covers policyholders for a limited amount of time, then coverage ends when the term ends
  • Premiums are lower when policyholders are young but go up over time, typically every 5 years
  • Portability premiums are typically higher than premiums paid as an active employee if a policyholder wants to keep their coverage when changing jobs
Combining term and perm

By having a base level of permanent coverage and supplementing it with term coverage, policyholders can account for their changing needs throughout life. Think about it; policyholders are likely to need more protection in working years with expenses like a mortgage and children. Since these are more temporary expenses, they can be accounted for with term life insurance.

On the other hand, there are some expenses which may require more permanent coverage. These are things like funeral expenses, protection for long-term care and living expenses for a spouse. Expenses like these are consistent throughout life and best addressed with permanent life insurance coverage.

To get the best of both worlds, permanent life insurance should be used to provide a base level of protection and then supplemented with a term policy to provide protection when the life insurance need is highest. On the other hand, there are innovative product designs that do account for both of these needs, such as Trustmark’s Universal LifeEvents®. But, in situations where a term or permanent product may already be in place, there is still room to enhance protection for employees.

It’s time to get away from the mindset that policyholders need to choose between term and permanent coverage. Often having both options, with the ability to purchase the right combination of the two, is in a policyholder’s best interest. The key is educating consumers and helping them understand the best way to protect themselves and their loved ones.

Posted on March 14, 2019 in Life Insurance

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