Term or permanent life insurance? Get a blended policy
Most people understand the importance of life insurance as they start families and want to ensure their loved ones and their financial affairs are taken care of in case they die. But choosing between term and permanent life insurance can be a daunting decision. Blended life insurance, also known as combination life insurance, provides a packaged policy that includes some of both.
What is blended life insurance?
Blended life insurance provides greater flexibility than traditional term or permanent life insurance does. With term insurance, the insured person pays a fixed premium each month for the length of the term. If the insured outlives the term, coverage ends. Permanent life insurance, which is generally more expensive than term, provides guaranteed coverage for the lifetime of the insured, not just a specified term.
Blended life insurance allows an individual to purchase both permanent and term life insurance, according to USAA, which offers a blended product. For example, a person purchases a $250,000 blended life insurance policy and opts to have $100,000 of permanent coverage and $150,000 of term coverage for 30 years.
As the policy matures, term coverage can convert to permanent coverage, increasing the amount of permanent coverage you have. Or, in some cases, as with USAA's policy, the term coverage simply drops off at age 65, leaving you with the remaining permanent coverage. This gives you the maximum coverage when you have dependents and then still leaves you with enough to cover your final affairs.
What are the benefits of blended life insurance?
Blended life insurance offers a number of benefits, including:
- Affordability. Purchasing blended insurance at a younger age lets you get life insurance (both term and permanent) at a lower rate, according to Northwestern Mutual. By combining less expensive term coverage with more expensive permanent coverage, you save money.
- Coverage for short-term expenses. Blended life insurance allows term coverage for financial obligations like mortgages, debt and education for children when it is most likely to be needed.
- Tax benefits. Combination life insurance plans generate cash value over time, which grows tax-deferred.
Who might benefit from blended life insurance?
Blended life insurance policies can be customizable. Northwestern Mutual, for example, provides combination life insurance for a number of situations, including an adjustable policy that allows customers to make changes as insurance needs evolve and a policy designed to preserve the value of an estate. It also recommends its blended products for those who have dependents with special needs as well as for owners of family businesses.
It's important to understand that premiums for blended life insurance may increase over time depending on interest rates. But, overall, blended life insurance can be a good choice for those who want flexible, affordable coverage that guarantees a portion of permanent coverage while ensuring short-term financial needs are covered as well.