Home > Learning Center > Life > Term vs. Permanent Life Insurance

Term vs. Permanent Life Insurance

Find Your INSURAMATCH

Already have a quote? Retrieve it.

Have you received a replacement quote for your 21st Century Insurance policy? Click to retrieve your existing quote or start a new one.

 | August 16, 2017
Term vs. Permanent Life Insurance: Which is right for your family?

There are several different types of life insurance. The two primary types of life insurance, term life insurance and permanent life insurance, are what most people are looking for when they begin shopping for a plan that will work for their family.

Both of these forms of life insurance can help you provide for your family if the unexpected were to happen. There are benefits and drawbacks to each type of coverage depending on your situation and what you want to protect. For some families, a combination is the best way to ensure their risk is managed.

A life insurance agent can help you decide what makes the most sense for you. Each family is different, and so each family has different life insurance needs. Our summary can help you understand the different types of coverage available, but before shopping, it is best to speak with an agent to review your options and what you have to protect.

Term Life Insurance

Term life insurance is the simpler form of coverage. This type of life insurance covers a set period of time, a “term,” at a set rate of premium, both of which are agreed upon when the policy is purchased. During the term, the coverage will offer a death benefit and premiums will remain fixed in cost. Once the term has ended, however, the premiums increase. Often, the policy becomes too expensive to maintain once the term has ended. If you are unable to keep up the new rate after the term has passed, the policy is then cancelled and no longer offers a death benefit.

Because the coverage is temporary, term life insurance offers limited protection compared to permanent life insurance. Limited coverage does have it’s benefits - term life insurance is also typically more affordable than a permanent plan.

Permanent Life Insurance

Permanent life insurance does exactly what the name implies. If you continue to pay your premiums on time throughout the life of the policy, it will cover you permanently for your whole life with a guaranteed death benefit. You cannot outlive this coverage and your policy will never change, as long as you pay your premium. There are two types of permanent life insurance, whole life and universal life.

Whole life insurance is popular because it builds cash value over time as you pay your premium. The cash value component of a universal policy tends to be smaller. Both of these policies are more flexible than term life insurance.

Which Coverage is Right For You?

Deciding whether or not to purchase a whole (permanent) life insurance policy or term (temporary) life insurance policy is a personal decision based on a number of factors. Here are a few things to consider, but the best advice I can give is to consult a licensed professional that takes the time needed for you to fully understand your options:

Whole life insurance is a good foundation, but it is expensive and should often be supplemented with term life insurance. Both policies have pros and cons.

A popular approach is to buy term life insurance and invest the difference that you would have had to spend to purchase a similar whole life policy. Be careful with this course of action though, because it is dependent on two important conditions. The first being that you will actually invest the extra money and not spend it. The second is that the investments you make will perform well.

If you’re unsure or unable to afford a whole life insurance policy, a term life policy that is convertible to whole life later on may be the right option for you. Speak to your agent and make sure you fully understand the terms of the policy and what you would need to do in order to convert the policy and when you’ll need to do it, the deadlines can vary from policy to policy.

At the end of the day, it’s best to consult a licensed professional. A life insurance agent can help you conduct a needs analysis, which will help you determine how much insurance you need to provide the security you are looking for and which policy best suits your needs and situation.

Bottom Line

For anyone with financial dependents, life insurance is a wise consideration. What kind of life insurance you purchase depends on your situation and your budget, and it is best reviewed with a licensed life insurance agent to ensure you’re getting the proper coverage for your family.