Should I Buy Term or Permanent Life Insurance?

Shawn Plummer

CEO, The Annuity Expert

Deciding which type of life insurance to purchase can be a difficult choice. Term and permanent life insurance are two policies, each with unique features and benefits. If you’re considering taking out life insurance, it is crucial to understand the differences between term and permanent coverage to make an informed decision about what’s best for your needs. In this guide, we will provide an overview of these different policy options so that you can decide where to put your money when it comes to insuring yourself or your family.

Term Life Insurance vs. Permanent Life Insurance

What is Term Life Insurance?

Term life insurance is a type of life insurance policy that provides death benefit coverage for a specific period. For example, if the insured individual dies during the policy term, their beneficiaries will receive the death benefit. Term life policies are typically renewable at the end of each Term, but premiums may increase over time due to the age or health of the insured individual.

It is important to note that term life insurance does not include any cash-value or investment components, so no money is returned to the policyholder after the policy expires. Term life insurance is popular for people who want coverage protection but do not need long-term financial planning options. Term life insurance is typically more affordable than other types of life insurance since it does not have cash value or investment components.

Term life insurance can provide financial protection for the insured individual’s family if they die unexpectedly during the policy term. It is also commonly used by individuals wishing to provide a death benefit for their business to cover business debts.

What Is Term Life Insurance?

What is a Permanent Life Insurance Policy?

A Permanent Life Insurance Policy is a type of life insurance policy that provides coverage for the insured’s lifetime. Unlike term life insurance policies, permanent life policies do not have an expiry date. Instead, the premium payments remain level, and the death benefit is guaranteed until the policy matures or is canceled by either party.

Permanent life insurance policies also benefit cash value accumulation, which can be withdrawn or borrowed against. This cash value is often used to supplement retirement income or to help fund college tuition and other significant expenses. Permanent life insurance policies provide peace of mind for policyholders seeking a long-term financial solution. They also offer flexibility as they can be tailored to meet individual needs.

Permanent life insurance policies come in different forms, including whole life, universal life, and variable life. Each of these types of policies offers different features and benefits to policyholders.

Whole life policies are the most traditional type of permanent life insurance policy and have a fixed rate of premium payments throughout the length of the policy. Universal life policies allow for flexible premium payments and death benefit amounts and the ability to invest a portion of the premiums in various investment options. Variable life policies are similar to universal but offer more investment options.

What Is A Permanent Life Insurance Policy?

What Are The Different Types of Permanent Life Insurance?

There are two main types of permanent life insurance: whole life and universal life.

Whole life is the most common type of permanent policy. It guarantees death benefits, cash value, and a fixed premium that never increases. Universal life offers more flexibility regarding premiums, coverage amounts, and investment options. The cash value can be invested in stocks, bonds, and other investments to help build the policy’s value over time.

Whole life insurance policies are typically more expensive than term life policies due to their long-term nature. However, they provide a guaranteed death benefit that cannot be outlived and guarantee cash values that can be borrowed against or withdrawn.

Universal life insurance offers more flexibility regarding premium payments and coverage amounts. Still, they are not guaranteed to remain in force if premiums are not paid or the cash value is insufficient. The cash value can be invested in different investments to help build the policy’s value over time, although this comes with additional risks. Sometimes, the policy may even lapse if the cash value is depleted.

Compare Term With Permanent Life Insurance Quotes

Use our calculator to compare Term and permanent life insurance rates to determine what you can afford.

What is The Difference Between Term Life and Permanent Life Insurance?

The main differences between Term or permanent life insurance are the length of coverage, the premium amount, and the cash value.

Term life insurance offers temporary coverage for a specific period (usually ten to thirty years) at an affordable rate. The premiums are fixed, meaning they will remain the same throughout the policy term. If you pass away during your term life policy, your beneficiary will receive a death benefit. However, once the Term ends without a claim, you won’t be able to renew the policy, and there is no cash value.

Permanent life insurance offers coverage for your entire life and builds up cash value over time. Permanent life insurance premiums are usually higher than term life insurance, but these premiums are fixed and won’t increase as you age. In addition, if you pass away while the policy is active, your beneficiary will receive a death benefit; if not, the policy’s cash value can be used to supplement retirement income or cover end-of-life costs. Different types of permanent life insurance policies offer different features and benefits.

What Is The Difference Between Term Life And Permanent Life Insurance?

Do Both Term Life and Permanent Life Insurance Provide a Death Benefit?

Yes, both types of life insurance policies provide a death benefit. A death benefit is the sum of money paid out to the beneficiaries or estate of an insured person upon death. For term life insurance, this sum is usually the amount of coverage purchased by the policyholder and generally remains fixed throughout the length of the policy. For permanent life insurance, the death benefit can vary depending on the type of policy. For example, some policies may have a guaranteed death benefit, while others may accumulate cash value over time, adding to the death benefit.

No matter what type of life insurance policy you have, you will be eligible for a death benefit when you pass away as long as your premiums are up-to-date and the policy is still in effect.

The policy’s death benefit can help cover funeral expenses, pay off debts, or provide a financial safety net for your family members. When deciding which type of life insurance you need, you must consider how much coverage you want and how long you will need it to ensure you are adequately covered in the event of your death.

What Are The Advantages of Term Life Insurance?

Term life insurance offers several advantages that make it attractive to many individuals.

One advantage is its affordability, as term life policies are more affordable than permanent life insurance policies. Another advantage of term life insurance is the flexibility it provides. Since you are not locked into a permanent contract, you can adjust your coverage amount and length anytime.

The simplicity of term life insurance makes it attractive to customers who want straightforward coverage with no investment component. Term policies are also generally easier to understand than permanent policies, and their premiums remain the same throughout the policy period, making budgeting easier for policyholders.

In addition, if you outlive your term life insurance policy, you do not lose the money you paid in premiums – it simply reverts to the insurance company. This means that term life insurance can provide a low-cost way to obtain coverage for a specific period without worrying about any additional financial losses if you should outlive the policy’s Term.

Finally, term life insurance policies are usually tax-free, meaning the death benefit is paid out to your beneficiaries free of income taxes. This can provide significant relief for those who have already exhausted their other options for eliminating or minimizing estate taxes.

What Are The Disadvantages of Term Life Insurance?

Despite being a relatively simple and affordable type of life insurance policy, there are several disadvantages to getting term life insurance.

The coverage only lasts for a certain amount of time, typically between 10 and 30 years; if the insured lives beyond that period, the policy will no longer be in effect. Also, no cash value is attached since it is not a permanent life insurance policy. And be mindful some term life policies have premiums that increase as the insured person ages, which may make them difficult to maintain in later years.

What Are The Advantages of Permanent Life Insurance?

Permanent life insurance offers many advantages to policyholders. Permanent insurance is a type of life insurance that provides coverage for the policyholder’s entire lifetime and builds cash value as premiums are paid. Benefits include:

  • Lifetime Coverage: Unlike term life policies, which provide coverage only for a specific time, permanent life insurance covers the policyholder’s entire life. This means that, as long as premiums are paid and the policy remains in force, beneficiaries will receive a death benefit regardless of when the policyholder dies.
  • Builds Cash Value: Permanent life insurance policies accumulate cash over time as premiums are paid, which can be accessed through policy loans or used as retirement income.
  • Flexible Benefits: Some permanent life insurance policies allow the policyholder to adjust their coverage amount, change the beneficiaries, and make other modifications over the years. This flexibility can be incredibly helpful in changing circumstances.
  • Tax Benefits: The cash value of a permanent life insurance policy accumulates without taxation, making it an attractive option for long-term savings. The death benefit is also generally exempt from taxes.

Permanent life insurance can provide protection and financial security for policyholders and their loved ones. It’s essential to consider all available options when choosing a life insurance policy to make the best decision for yourself and your family.

What Are The Disadvantages of Permanent Life Insurance?

Permanent life insurance has a few disadvantages that must be considered before investing. One of the main drawbacks is the cost. Permanent life insurance policies are generally more expensive than term life insurance policies due to the potential for cash value accumulation and higher death benefits. Some other drawbacks include the following:

  • Lack of liquidity: While permanent life insurance policies provide cash value over time, taking a loan or withdrawing funds from your policy will reduce the death benefit and increase premiums. There are also surrender charges if you cancel your policy within a specific time frame.
  • Complexity: Permanent life insurance policies can be more complex than term policies due to the multiple layers of benefits, riders, and options, making them more challenging to understand.
  • Tax Implications: Although permanent life insurance policies offer tax advantages, this benefit is not guaranteed since tax laws constantly change. In some cases, policyholders may be subject to income tax on their cash value if they exceed certain limits.

When choosing the right life insurance policy, you must speak with a professional who can help you weigh the pros and cons of the options available.

Who is Term Life Insurance Best For?

Term life insurance is best for those looking for straightforward coverage that provides temporary financial protection. It’s an excellent option if you want to protect your loved ones in the event of your death but do not need lifelong coverage.

Term life insurance policies generally have lower premiums than permanent ones and provide a fixed amount upon the insured’s death. This makes it an excellent option for those looking for financial protection during a specific period, such as while raising children or paying off large debts.

Term life insurance policies can also cover burial expenses and other final costs upon death, ensuring your family will not be burdened.

Overall, term life insurance is best for those seeking temporary financial protection during a specific time. It’s a great way to ensure your family has the funds they need if you pass away unexpectedly. With its low cost and flexible terms, term life insurance is often seen as an affordable and straightforward option for many individuals.

Who is Permanent Life Insurance Best For?

Permanent life insurance is best for someone who wants to provide lifelong financial protection and peace of mind for their loved ones. Whether that is a spouse, children, parents, or close friends, permanent life insurance can help ensure that in the event of death, those closest to you are taken care of financially.

It’s also beneficial for someone who wants to build a legacy and create a lasting financial impact. From providing money for college tuition, paying off mortgages, or even creating an inheritance, permanent life insurance can help you achieve your long-term financial goals.

Permanent life insurance is not suitable for everyone, though. Those with more immediate needs might be better served by other financial products such as term life insurance or investing. Those looking for more immediate income should consider long-term care insurance or annuities.

Overall, permanent life insurance is a great way to provide long-term financial protection and peace of mind against unexpected events. It can help ensure your loved ones have the resources to cope without you and can be tailored to meet your needs. However, it may not be the best fit for everyone, so take the time to research all your options.

Who Is Permanent Life Insurance Best For?

Is Term Life or Permanent Life Insurance Better?

It depends on your individual needs and situation. For example, term life insurance covers a specific period, while permanent life insurance is designed to last your entire life.

Term life insurance is typically the most affordable option and can provide a significant amount of coverage with premiums that stay fixed throughout the policy term. The coverage continues as long as you keep up with the payments and will pay a death benefit if you die while the policy is in effect.

On the other hand, permanent life insurance has higher premiums, but it has a cash value component you can access during your lifetime. The cash value may supplement retirement income, pay for long-term care needs, or pass on money to your beneficiaries.

Is Term Life Or Permanent Life Insurance Better?

Why Build Cash Value in a Life Insurance Policy?

Because the cash value is a benefit for living, through tax-free loans and withdrawals, the cash value can help fund retirement, pay for college, and deal with unexpected emergencies.

Remember, you want to fund your policy correctly to have enough cash value for a loan or withdrawal.

Next Steps

Term life insurance is often better for young adults and those with families. However, if you are older, have a policy covering you until retirement, or can’t afford the premiums on a permanent policy, then whole life insurance may be a good option. No matter your situation, we can help you find the right life insurance policy for your needs. Contact us today for a quote.

Term Or Permanent Life Insurance

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Frequently Asked Questions

What age does most term life insurance end?

Year after year, you can renew your term life insurance policy until 95 – a remarkable feat!

Can I switch from Term to permanent life insurance?

It is pretty straightforward to convert your term life insurance policy into a permanent one; however, deciding whether it’s the right move for you is far from easy. Here are some insights on how and why you should consider converting your term life to permanent life insurance.

What is the critical difference between permanent and Term insurance?

When comparing Term and permanent life insurance, the critical distinction is that with term life, you’re insured for a specified number of years up to 30, while permanent coverage safeguards your loved ones for the rest of your lifetime. In addition, Permanent policies have an investment component which the Term does not include.

What is the benefit of permanent life insurance?

Permanent life insurance offers security and savings through a death benefit and cash value. If something unexpected occurs, your beneficiaries will be given a sizeable sum to cover expenses. Furthermore, you can access the policy’s cash component even before your demise – providing additional protection for yourself and your loved ones.

What happens to a term life insurance policy if you live beyond the Term?

If you surpass the lifespan of your term life insurance policy, it will lapse. Subsequently, you no longer have any coverage and won’t be able to make payments to maintain the active status of your policy.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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