What is the difference between permanent and term life insurance?


Term life and permanent life insurance are two of the most popular types of life insurance on the market today. Term life insurance is essentially “renting” your policy for 10-30 years, whereas permanent life insurance coverage lasts your entire life or until you die.

Each type of life insurance has its benefits. Most policies allow you to customize your coverage with riders, which means you can protect against a critical illness or disability in addition to your 15-year term life policy. Continue reading to learn more about term and permanent life insurance policies and which one is best for you.

What Does Term Life Insurance Means?

Term life insurance covers you for a set period of time, usually between one and three decades. If you die while your policy is still active, your beneficiary will receive a death benefit in the form of a tax-free lump sum. If your term expires, and you no longer require the coverage, you and the insurance company simply part ways. If you still require life insurance, you can change the term length (at an additional monthly cost) or switch to permanent life insurance.

Converting to permanent life insurance may raise your premiums, but it is a good option for people who know they will need coverage for the rest of their lives.

What Does Permanent Life Insurance Means?

Permanent life insurance is an “umbrella” term for whole and universal life insurance; all of these policies provide guaranteed, non-expiring coverage. Aside from providing lifetime coverage, permanent life insurance also provides flexible payments (avoiding a lapse in coverage if you don’t pay on time) and a tax-deferred cash value savings account built into your policy.

These benefits come at a slightly higher cost than a term life policy; however, you will gain benefits not found in a term life policy.

What Is the Distinction Between Whole Life Insurance and Universal Life Insurance?

Because it lasts an average human’s lifespan rather than your lifespan, universal life insurance is generally less expensive than whole life insurance. Both options include a cash value component from which you can make partial withdrawals or, in some cases, use the funds to cover your premium payments. Some policies also allow you to surrender your policy and receive a cash payment equal to the surrender cash value.

Term life insurance is generally the most affordable type of life insurance for the majority of people. Term life insurance premiums can remain constant throughout the policy’s term. In some cases, permanent, whole, and universal life insurance policies can provide a fixed premium, but the premium price is generally higher than that of a term life policy.

Each Type of Life Insurance has Both Advantages and Disadvantages

A term life insurance policy would be a good fit for those looking for a low monthly premium and a customizable coverage amount. Whole or universal life insurance is a good option for people who want lifetime coverage with a savings component.

You should also consider your relatives and loved ones: term life insurance can provide a death benefit to your young children if you die or suffer a critical illness or disability while they are financially dependent on you.

Whole life insurance may be a good fit if you need long-term coverage and want to save money for a child’s education or to supplement retirement income for you and a spouse or partner. Permanent life insurance is a better fit than term life insurance if you want to provide estate liquidity for taxes or leave an inheritance to loved ones.

Find your Best-Fit Policy

Purchasing a life insurance policy is important for your family. Whichever policy type you choose, you can rest assured that your loved ones will be protected from financial hardship if you are no longer alive. Connect with a professional insurance agent to learn more about permanent life insurance.

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