Term vs. Permanent: Which Type of Life Insurance Do I Need?

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Two of the most popular types of life insurance on the market today are term life and permanent life insurance. With term life, you are essentially “renting” your policy for 10-30 years, while permanent life insurance coverage lasts a lifetime or until you pass away. 

Every type of life insurance has its own unique advantages. With most policies you can also customize your coverage with riders, meaning that you could protect against a critical illness or disability on top of your 15-year term life policy. Read on to learn more about term and permanent life insurance to determine which policy is your best-fit option. 

What is term life insurance?

Term life insurance lasts a certain “term,” usually ranging from 10-30 years. If you die while your policy is in force, your beneficiary receives a death benefit as a tax-free lump sum. 

If you reach the end of your term and do not need the coverage, you and the insurance company simply part ways. If you still need life insurance, you can choose a new term length (this may come at an additional monthly cost) or change your coverage to permanent life insurance. Converting to permanent life insurance could increase your premiums, but this is a good option for individuals who know they will need a lifetime of coverage.

What is permanent life insurance?

Permanent life insurance is the “umbrella” term for whole and universal life insurance; all of these policies offer guaranteed coverage that won’t expire. Permanent life insurance has several benefits beyond offering lifetime coverage, you can also enjoy flexible payments (avoiding a lapse in coverage if you don’t pay on time) and a tax-deferred cash value savings account built into your policy.

With these benefits comes a bit of a higher price tag than a term life policy; however, you will gain benefits that you wouldn’t find in a term life policy. 

Term vs. permanent life insurance
term vs. permanent life insurance comparison
What is the difference between whole life and universal life insurance?

Universal life insurance is generally more affordable than whole life insurance because it lasts an average human’s lifespan rather than your lifespan.

Both options include the cash value component in which you can make partial withdrawals or even use the funds to cover your premium payments in certain circumstances. Some policies also offer the option to surrender your policy and receive a sum of funds equivalent to the surrender cash value.

Policy pricing

In terms of affordability, term life insurance is generally the most affordable type of life insurance for most individuals. Term life offers premiums that can be as low as $20 a month, and that rate stays fixed throughout the life of the policy.

Permanent, whole and universal life insurance policies can provide a fixed premium in some cases, but the premium price is generally more expensive than a term life policy.

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Learn more about the differences between term and permanent life insurance.

Term vs. permanent life insurance: who each policy is best for

There are pros and cons to each type of life insurance. For those looking for an affordable monthly premium and a customizable coverage amount, a term life insurance policy would be a good fit. For individuals who prefer lifetime coverage with a savings component, whole or universal life would be a good fit.

You’ll also want to consider your dependents and loved ones: term life insurance can provide your young children with a death benefit if you pass away or face a critical illness or disability while they’re financially dependent on you.

If you are looking for long-term coverage and want to build cash savings that could later be used to fund a child’s education or supplement retirement income for you and a spouse or partner, whole life could be a good fit. If you are looking to provide estate liquidity for taxes or leave an inheritance for loved ones, permanent life insurance will likely be a better fit than term life.

Find your best-fit policy today

Choosing a life insurance policy is one of the best decisions you can make for your loved ones. Whichever policy type you choose, you can rest assured knowing that your loved ones are protected against financial hardship in the event you were no longer around. To learn more about permanent life insurance, connect with a licensed agent who can shop around to help you find the best policy at the best price.

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Calie Brummer
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Calie Brummer is a staff writer and Head of Digital Communications at Quility Insurance with a focus on financial well-being and life insurance solutions.