Term Life Insurance vs Permanent Life Insurance

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Jessica Fox 08-11-2021

Term vs Permanent Life Insurance

term vs permanent life insurance

If you think life insurance is as confusing as a Rubix cube, we can’t argue that it takes some time to wrap your head around it. Fortunately, we’re here to help simplify things so you can better grasp which life insurance product better suits your unique needs.

Both products have one commonality: they serve to protect your beneficiaries by offering them a death benefit financial payout to support them even when you’re not here. So with that in mind, let’s explore the benefits and differences between term life insurance and permanent life insurance. 

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Term Life Insurance

As the name suggests, term life insurance is a short-term product that you purchase for a specific allotment of time (10, 20 or 30 years). How short-term coverage works is if you pass away while the policy is active then your beneficiaries will receive the death benefit payout, otherwise, the policy remains until it reaches the end of the term. 

Some of the main components of term life insurance are:

  • It tends to be less expensive than other term life products as your premiums are based on your health, age and face value of the product.
  • Due to its inexpensive nature, you won’t build any equity. Once the policy runs out, you won’t accrue any cash value; unless you tack on a Return of Premium rider, where you’ll get your premiums reimbursed.
  • Because it is a short-term product, you will need to renew or convert it to permanent life insurance if you reach the end of your policy.

Who Should Consider Term Life Insurance?

Term life insurance isn’t right for everyone; in fact, it’s usually not the first choice for most applicants for many reasons. But there are a few scenarios when you should strongly consider getting term life insurance, such as:

  • The policyholder is young and wants straightforward coverage at a good rate.
  • If you want to lock into a good rate when you’re young and in good health.
  • If you’re a few years away from retirement, having term life insurance will replace your income; this helps your spouse financially by allowing them to continue to live the lifestyle they’re used to should you pass away before the policy expires.

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Permanent Life Insurance

What makes permanent life insurance such an attractive life insurance to prospective applicants is that it offers whole life protection, which means you only have to set up your plan once as your plan never expires. Another reason why permanent life insurance is a popular choice among policyholders is that it has a cash value that allows you to borrow against it for large purchases, like a house. The most challenging decision you’ll have to make is figuring out the policy face value — for this, you may want to consult an insurance professional, so you select the right amount.

Additionally, there are 3 types of permanent life insurance to choose from:

  • Whole Life Insurance: Your premiums are fixed, and as the policy matures, so too does your cash value. Certain insurers may even offer dividend payments to policyholders.
  • Universal Life Insurance: As long as you keep up with your payments, universal life insurance has an interest-bearing account that allows policyholders to borrow or withdraw against it. You may also make changes to your premiums or death benefits – within reason.
  • Variable Life Insurance: For financially minded individuals, variable life insurance is a high-risk product that allows you to make investment choices. Ultimately, this means your premiums and death benefits are tied to how well your investments are doing. You can also borrow against the policy, but it reduces your death benefits.

What Is The Difference Between Term And Permanent Life Insurance?

There are many differences between term vs. permanent life insurance. The first step is to identify your life insurance expectations: are you looking for simplicity or something that stays with you for life? Settling your needs will almost always direct you into which life insurance is best for you. But, if you’re still not sure, here’s a reference chart to help you compare term life insurance vs. permanent life insurance.

Term vs. Permanent Life Insurance
TermPermanent
Product LifespanTermWhole life
Variation Of PremiumsNoNo
Premium CostLowerHigher
Equity (Cash Value)NoYes

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Term vs. Permanent Life Insurance: Which Is Best For You?

When it comes to settling on which life insurance policy makes the most sense for you, the best place to start is determining your needs, like perhaps you want a policy with equity. Once you know what your expectations are from your life insurance product, you can make a more informed decision as to which product is best for you!

Jessica FoxJessica Fox has been a freelance writer for five years, with a specialty in health, wellness, and insurance. During this time, she’s written for some of the biggest B2B and B2C brands from around the world. Jessica is also the mother of two young daughters and loves coffee, writing, and working out.