Do You Own or Rent Your Life Insurance Policy?

Like a home, a life insurance policy can be rented or owned. This is determined by the type of life insurance policy that you decide to purchase. Getting term life insurance is like renting a life insurance policy. On the other hand, getting permanent cash value life insurance is like buying a life insurance policy.

And, just like there are important differences to understand in terms of the costs and benefits of renting versus owning a home, there are also important things to understand about the differences between renting (term) versus owning (permanent) a life insurance policy.

How Term Life Insurance Is Like Renting a Home

If you decide to rent an apartment, you must sign a lease for a certain amount of time during which you agree to pay a contracted monthly or annual fee in exchange for being able to live in that apartment during that time. You have no ownership rights, other than the benefit of living in the apartment, and no equity in the residence when you decide to move. In short, once you stop paying, you lose any rights or benefits to living in that apartment.

Like a lease on an apartment, a term life insurance policy is also a temporary contract with limited benefits and no ownership rights.

  • You make set payments to have coverage for a predetermined number of years.
  • At the end of your contracted term agreement, if you want to keep your life insurance policy, the insurance company (like a landlord) will require a new agreement with different terms and a higher premium.
  • It is simpler and cheaper to rent a term life insurance policy than to purchase a permanent life insurance policy.
  • It provides financial shelter for your family but you do not have any equity in it. When you stop paying the premium, the policy ends and you no longer have access to this shelter—whether it is needed or not.

How Permanent Life Insurance Is Like Owning a Home 

If you choose to purchase a home, you have permanent ownership of that home for as long as you like or need it. While you typically must pay more upfront to purchase a home, over time it builds increasing equity to the point that you no longer have a mortgage payment and can own your home outright. As a result, in addition to providing physical shelter and comfort for as long as needed, you also have access to the value of your home through loans, withdrawals, and completely cashing out if you decide to sell. In short, you a home is not only a place to live but becomes an important long-term asset that can help you build wealth and add to your financial security

Like owning a home, a permanent cash value life insurance policy is also an asset that not only provides financial shelter for your family but can be an important long-term asset to help you and your family build wealth.

  • Your initial premium is higher than what you would pay for a term life insurance policy, like an initial down payment on a home.
  • The amount you pay (your premium) can be fixed, decrease over time, and completely disappear when you pay off your policy.
  • Like the value of a home, your life insurance policy increases in value over time.
  • The policy’s cash value can be accessed as a return of premium, withdrawal of cash value, or as a tax-free line of credit to use for any purpose.

Which Option Is Right for Me? 

Like choosing between renting or owning a home, the best option for you depends on what you’re trying to accomplish.

  • If you want to provide a tax-free inheritance to loved ones, regardless of when you pass away, permanent life insurance may be a better option.
  • If you have a limited amount of money and a need for a large amount of money for dependents if you die, term life insurance may be a better option.
  • If you want to build lifelong cash accumulation in a safe investment account, permanent life insurance may be a better option.
  • If you are unsure about future circumstances, or current finances, term life insurance may be a better option.
  • If you are concerned about future tax increases during retirement, or long-term care costs, permanent life insurance may be a better option.
  • If you have a variety of current and future financial needs, a combination of term and permanent life insurance policies may be the best option.

CEG Life Can Help

Too many people do not truly understand the difference between owning and renting life insurance and the benefits and downsides of each CEG Life Insurance Services is here to help you choose the right policy for your plans and circumstances.

Contact us to learn more and discover if renting or owning life insurance is best for you.