What is the difference between term and permanent life insurance?

When it comes to life insurance, there are two basic choices: term life or permanent life. Consider some of the differences before you decide which is right for you.

Length of coverage

Term insurance provides coverage for a specific period, such as 10, 15, 20, 25 or 30 years, and is renewable after those terms are up. Permanent insurance, which includes Whole Life and Universal Life, is designed to provide lifelong financial protection as long as the policy is in force.

Insurance cost

Initially, term life premiums are generally lower than permanent life premiums. However, term life premiums typically increase upon each renewal, while permanent life premiums stay the same.

Cash value

With most types of permanent insurance, there is a savings component known as cash value; the longer you pay into your policy, the more its cash value grows. You can choose to cash in or borrow against your permanent life policy and use the funds as needed. Term insurance does not accumulate cash value because it doesn’t have a savings component.

Convertible policies

If you have a term insurance policy, you can convert it to a permanent policy. Permanent policies are not convertible.

Death benefits

Both types of insurance provide life insurance protection and pay out for death claims made by beneficiaries. In cases where the policy term expires before the insured person dies, a claim would not be paid. There is lifelong financial protection with permanent life insurance, so beneficiaries will receive the death benefit as long as the policy was in force when the insured person passed away.

Which is best for me?

If you are willing to forego the long-term benefits of building up a cash value in your policy to save on premiums, term insurance is for you. If you want cash value and the other benefits, go with permanent.