Term Life Insurance vs. Permanent Life Insurance: Understanding the Key Differences

Written by Carrie Kerns, April 2025

When it comes to life insurance, two primary types dominate the market: term life insurance and permanent life insurance. While both provide a death benefit to your beneficiaries, they differ in structure, cost, and coverage duration. Understanding these differences can help you choose the right policy based on your needs and financial goals.

Term Life Insurance

Term life insurance offers coverage for a specific period, typically 10, 20, or 30 years. It is designed to provide a death benefit to your beneficiaries if you pass away during the term of the policy. Term policies are generally more affordable than permanent life insurance because they do not build cash value and are only in force for a set number of years.

Pros:

• Lower premiums: Since it’s temporary, term life insurance tends to be much more affordable, especially for younger, healthier individuals.

• Simplicity: It’s straightforward—pay premiums for a set term, and your beneficiaries receive a payout if you pass away during that time.

Cons:

• Temporary coverage: Once the term ends, the policy expires, and you may need to purchase new insurance, often at a higher rate as you age.

• No cash value: Term policies do not accumulate savings or investment value, so they don’t provide any return if you outlive the policy.

Permanent Life Insurance

Permanent life insurance provides lifelong coverage, as long as premiums are paid. It comes in different forms, such as whole life, universal life, and variable life.[1] Permanent policies offer both a death benefit and a cash value component, which grows over time and can be borrowed against or used to pay premiums.

Pros:

• Lifetime coverage: As long as premiums are paid, you are covered for life, making it a good option for long-term financial planning.

• Cash value: Part of your premium goes into a savings or investment account, which grows over time. This can be accessed during your lifetime through loans or withdrawals.

Cons:

• Higher premiums: Because of the cash value and lifetime coverage, permanent life insurance tends to be much more expensive than term policies.

• Complexity: Permanent life insurance policies can be more complicated, with varying rates of return on the cash value, and additional fees.

Which is Right for You?

The choice between term and permanent life insurance depends on your personal situation. Term life is ideal if you need affordable coverage for a specific period—such as while you have dependents or a mortgage. On the other hand, permanent life might be better if you're looking for lifelong coverage and are interested in building a cash value that can serve as an investment or provide financial flexibility later in life.

Ultimately, it’s important to carefully assess your long-term needs and budget before deciding which policy best aligns with your goals.

Life insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your financial professional can provide you with costs and complete details.

[1] Variable Universal Life Insurance/Variable Life Insurance policies are subject to fees and charges. Policy values will fluctuate and are subject to market risk and to possible loss of principal. Guarantees are based on the claims paying ability of the issuer. (136-LPL)