Term vs. Permanent Life Insurance

Term vs. Permanent Life Insurance: What’s the Difference?

Choosing between term and permanent life insurance comes down to your financial goals, coverage needs, and budget. Each type has distinct features that make it a better fit depending on your life stage and long-term plans. Here’s a breakdown to help you decide.

Coverage Duration

Term Life Insurance
Term life insurance provides coverage for a fixed period—typically 10, 20, 30, or even 40 years. If the insured person dies during the term, the policy pays out a death benefit to the named beneficiaries. If the term ends before the insured passes away, the policy expires unless renewed. Renewals are usually available but often at a higher rate and possibly with reduced coverage.

Permanent Life Insurance
Permanent life insurance, which includes types like whole and universal life, lasts for the insured’s entire lifetime as long as premiums are paid. This type of policy guarantees a death benefit regardless of when death occurs and may also include a cash value component that builds over time.

Cost

Term Life Insurance
Term policies are generally more affordable. They offer straightforward protection without a savings or investment feature. This makes term life ideal for those who need coverage during their working years or while raising a family—when financial responsibilities are high.

Permanent Life Insurance
Permanent life insurance costs significantly more than term coverage—often 5 to 10 times more. That’s because the policy guarantees a payout and includes a cash value component that grows over time. Policies like Life Insurance Network guaranteed issue whole life skip medical exams and base rates on factors like age and gender, not health, which can be appealing for older applicants or those with health concerns.

Cash Value

Term Life Insurance
Term policies do not accumulate cash value. They offer protection only and do not act as a savings or investment tool.

Permanent Life Insurance
These policies typically include a cash value that builds as premiums are paid. This value grows at a guaranteed rate and can be:

Borrowed against

Withdrawn

Left in the policy to increase the death benefit

Death Benefit

Term Life Insurance

Pays a death benefit only if the insured dies during the term.

No payout occurs if the policy expires before death.

Premiums must be paid for coverage to remain active.

Permanent Life Insurance

Guarantees a death benefit no matter when the insured passes away, as long as premiums are paid.

Some policies, like guaranteed issue whole life, offer a graded death benefit: partial payout in the early years, and full payout after two or more years—unless the death is accidental, in which case the full benefit is paid immediately.

Convertibility
Some term policies include a conversion option, allowing you to convert part or all of your term coverage into permanent coverage before a set deadline—without needing a new medical exam. These policies typically cost more than non-convertible ones but offer flexibility if your needs change.

After conversion, you’ll pay higher premiums, but you’ll gain the lifetime protection and cash value benefits of permanent insurance.

Real-World Examples
Term Life: Sarah, 35, is a married mother of two and the family’s main income earner. She chooses a 20-year term policy to ensure her kids can attend college if she passes away unexpectedly during that time.

Permanent Life: Frank, 68 and retired, wants to make sure his final expenses are covered and his loved ones aren’t left with financial stress. A whole life policy provides lifelong coverage and a guaranteed death benefit.

Both types of life insurance serve valuable purposes. Term life is ideal for affordability and temporary needs, while permanent life provides lifelong security and financial flexibility through cash value accumulation. If you’re still unsure which is best for your situation, consider your long-term financial obligations, goals, and budget—or explore hybrid options like convertible term life to keep both possibilities open.