Term vs. Permanent Life Insurance. Do you want to know about term vs. permanent life insurance? Then you are welcome to this page. Today I am going to show the difference between term and permanent life insurance. Just keep on reading and you will get all you need right here.
Term vs. Permanent Life Insurance
Now I will be explaining what the terms “insurance” and “permanent insurance” are. All you need to do right now is to sit back and continue reading this article. And when reading, you should avoid skipping any parts.
What is the term Life Insurance?
Term life insurance policies simply expire after a predetermined number of years — usually 10, 20, or 30. In addition to choosing the length of your policy, you will also select the amount of your death benefit, which is the amount your beneficiaries will receive when you pass away.
Most experts recommend reevaluating your policy a year or so before it’s set to expire. That way, you can have time to evaluate your options. Some insurers will even allow you to renew your policy or convert your term life insurance to a permanent life insurance policy. You can even let your policy expire, which simply means that your policy will end, you will stop paying your premium, and your beneficiaries will no longer receive a death benefit after you pass away.
Why would you choose life insurance that expires after a certain time? Term life insurance policies are simply cheaper than permanent life insurance policies. Often, people only want life insurance for a certain amount of time, such as when their children are young. If you are nervous about paying into a policy that will end, you may want to look into term life insurance options such as return-of-premium policies.
Term Life Insurance Pros and Cons
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Pros |
Cons |
|
Lower cost |
The policy expires at the end of the term. |
|
Flexibility in choosing a term that meets your needs. |
Premiums could go toward nothing if your policy expires. |
|
Easy to understand. |
It lacks the cash value component of other types of life insurance. |
What is Permanent Life Insurance?
Permanent life insurance is simply a type of life insurance policy that stays in effect throughout your entire life. As long as you simply pay your premiums, your death benefit is then guaranteed to pay out to your beneficiaries in most circumstances. Note that permanent life insurance policies are also significantly more expensive than term life insurance policies, but may be worth it for those who want lifelong coverage.
Unlike term life insurance, most permanent life insurance policies simply come with a cash value component. As you then pay your premiums, that money accumulates in a savings or investment account, through which you can simply earn interest or returns. If the cash value account then grows to a certain amount, you can also begin paying your premiums with it. You can even borrow money against the account, using the accumulated cash value as collateral.
There are three main types of permanent life insurance:
- Whole life insurance: You simply get permanent life insurance plus a cash value component that essentially functions as a savings account. You can also earn interest on your policy’s cash value component.
- Universal life insurance: With this policy, you simply get permanent life insurance plus a cash value component that simply earns returns based on how your investments perform. You might even be able to adjust your policy’s death benefit.
- Variable life insurance: This also gives you the most flexibility, but also the most risk. You get permanent life insurance, and you can invest your cash value component however you want. The issue is that if your investments do not perform well, the losses can eat into your death benefit.
Permanent Life Insurance pros and cons
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Pros |
Cons |
|
Policy lasts for life |
More expensive than term insurance |
|
The cash value component |
More complex than term insurance. |
|
Medical concerns arising after you buy your policy won’t affect it. |
If your invested cash value doesn’t perform well, you may incur losses. |
Term vs. permanent Life Insurance
When you are weighing term vs. permanent life insurance to simply determine which policy for your family or situation makes the most sense, you may simply want to pay special attention to the duration of the policy and the cash value component.
If you only want coverage for a certain amount of time—for instance, while your children are still financially dependent on you or while you are simply actively paying your mortgage—term life insurance may then be the right option for you. On the other hand, if you also have a lifelong dependent, such as a child with special needs, you may simply want to opt for the lifelong coverage that permanent life insurance offers.
The cash value account associated with permanent life insurance policies can simply act as an investment vehicle, but you will then pay higher premiums for this type of policy. You may even want to consider whether the cash value account is worth it or whether you’d rather invest outside of your life insurance policy.
|
|
Term Life Insurance |
Permanent Life Insurance |
|
Lower-cost premiums |
Yes |
No |
|
Policy expiration |
Yes |
No |
|
Cash value component |
No |
Yes |
|
Level premiums |
Yes* |
Yes** |
FAQs
What is the best Life Insurance company?
The best life insurance company for you simply depends on your unique preferences and also policy needs. An independent insurance agent may then be able to guide you to the best life insurance companies that simply offer the right policy types for you. From there, you may want to explore each company’s qualifications and terms to see which is the right fit for you.
Which is cheaper: term or permanent Life Insurance?
Term life insurance is normally much cheaper than permanent life insurance. However, if you want lifelong coverage, you may even want to opt for the more expensive permanent life insurance option, which remains in effect as long as you pay your premiums.
When should I buy Life Insurance?
Nobody likes to face their own mortality, and as a result, many people simply wait until later in life to start planning for their deaths. However, you might then want to take some time to research and also choose a life insurance policy sooner rather than later to lock in lower rates than you could later on.
