Like all life insurance policies, term insurance and permanent insurance were created to protect the financial well-being of your loved ones in case you pass away. What makes them different, however, comes down to a few basic factors: how long the coverage lasts, the features and benefits they offer, and how the premiums (your payments) are structured. Let’s take a look at how they compare.
How long does the protection last?
Permanent life insurance: As the name suggests, permanent life policies (such as whole life) are designed to provide long-term—often lifelong—coverage. As long as you continue to pay your premiums, your coverage will be there for you whenever you need it.
Term life insurance: Conversely, term life policies provide temporary protection that lasts for a set period of time (the term). In many cases, the coverage can be renewed, but only up to a specific age, and your premiums will generally go up with each renewal.
What benefits do I get?
Permanent life insurance benefits:
These policies generally offer long-term death benefit protection and a host of potentially valuable features. In particular, most permanent life policies give you the opportunity to build cash value. This feature can be especially helpful later in life since the cash value you accumulate can be accessed to help pay for unexpected emergencies or milestone events like college and retirement.
Term life insurance benefits:
With term coverage, you get short-term death benefit protection (often 10, 15, or 20 years), and your beneficiaries will receive a lump-sum death benefit if you pass away during this time. While term life does not offer any cash value accumulation, some policies come with flexible features that allow you to use your benefits early if you become terminally ill or will help pay your premiums if you become disabled.
How much does the coverage cost?
Permanent life insurance costs:
Since each type of permanent life insurance uses a different payment method, let’s focus on the most common, whole life. With whole life coverage, your premiums are locked in at the time of purchase and are guaranteed not to go up. As a result, whole life coverage may start out more expensive than term, but in the long run, it may prove to be a better value.
Term life insurance costs:
With term coverage, your premiums are locked in for the period of coverage you select. If you choose to renew your coverage, the premiums will increase annually. That’s why it’s important to carefully consider your timeframe and select the length of coverage that fits your needs and budget.
FAQs
Here are some frequently asked questions about term and permanent life insurance:
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What happens if I outlive my term life insurance policy?
- If you outlive your term life insurance policy, the coverage will expire, and you will no longer have a death benefit. You may have the option to renew the policy or convert it to a permanent life insurance policy, depending on the terms of your contract.
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Can I borrow against the cash value of my permanent life insurance policy?
- Yes, you can borrow against the cash value of your permanent life insurance policy. However, it’s important to note that borrowing against your policy will reduce the death benefit and may have tax implications.
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Which type of life insurance is better for me?
- The type of life insurance that is better for you depends on your individual needs, goals, and financial situation. If you’re looking for lifelong coverage and the ability to build cash value, permanent life insurance may be a good fit. If you need coverage for a specific period of time and want more affordable premiums, term life insurance may be a better option.
Conclusion
When deciding between term and permanent life insurance, it’s essential to consider factors such as the length of coverage, benefits, and cost. Permanent life insurance offers lifelong coverage and the opportunity to build cash value, while term life insurance provides short-term coverage at a more affordable price. To determine which type of life insurance is right for you, carefully evaluate your needs and consult with a trusted insurance professional.
