Difference Between Term and Permanent Life Insurance

Decide Which Type of Life Insurance to Buy

There are two basic kinds of life insurance

Term insurance

simple, affordable coverage you buy for a set period of time

Permanent insurance

combines lifetime coverage with the potential for cash value accumulation

Understanding the differences Between Term and Permanent Life Insurance
Choosing between term and permanent insurance can be compared to the difference between renting and buying a home.

Term insurance is like renting a home

Term insurance is a good choice if you need protection for the shorter term or have limited resources to pay for coverage. Monthly premiums are usually lower, but some policies can increase in cost as time goes on. Like renting, with term life insurance you don’t build up any equity or cash value—when the policy term ends, so does your coverage.

Permanent insurance is like buying a home

When you buy your home, your monthly costs may be higher than renting, but your mortgage payments help you build equity over time. Likewise, permanent life insurance provides you with long-term protection. Premiums are usually higher than they are for term insurance, but potentially build cash value—funds you can easily access by making withdrawals or taking out a loan. (Certain restrictions may apply.)

Deciding between term and permanent life insurance

The right kind of insurance for you will depend on why and for how long you need insurance.

To help make this decision, ask yourself these questions:

• Why do I need life insurance?
• How much protection do I need?
• How long do I need the protection?
• How much can I afford to pay?

Steps 1 and 2 helped you answer these questions. Use these answers as you review the differences between term and permanent insurance. Whether you select term or
permanent coverage, life insurance is one of the most important steps you can take to help protect your family’s financial future.

1. Protection

   Term insurance

   For a specified period of time, typically 10, 20 or 30 years.

   Permanent insurance

   Designed to provide lifelong protection and often has cash value features.

2. Premiums

   Term insurance

   Typically an initial lower cost than permanent insurance, with level premiums for that time period.

   Permanent insurance

   Often higher initial cost than term, but generally level premiums for life.

3. Potential Cash Value

   Term insurance

   Typically no opportunity for potential cash value.

   Permanent insurance

   Your net premiums have the potential to accumulate cash value and grow tax deferred.
   You have convenient access to your cash