If you're starting your research with basic life insurance, there are two options to choose from: term and permanent. Term life insurance lasts for a specific period that's pre-set, whereas permanent life insurance lasts your entire lifetime. This insurance guide discusses what is term life insurance and what is permanent life insurance so you can decide which is the best option for you. Learn more about your insurance options and other financial tips and information with this guide from IntentGen.
Comparing Term vs. Permanent Life Insurance
If your budget is your main concern and needs the most affordable insurance, term life insurance is your best option for temporary, short-term needs like your mortgage. For lifelong protection and cash value, permanent life insurance is an excellent option. There are key differences between the two, which you can learn more about below:
- Coverage Length — Term life insurance offers coverage for 1-, 10-, 15-, 20-, 25-, or 30-year terms, which is meant for those looking for flexibility. Permanent life insurance includes whole and universal life, and it's meant for lifelong financial protection as long as the policy remains in force.
- Premium Cost — Term life insurance premiums are typically lower than permanent life insurance. However, with term life insurance premiums, they can increase upon each renewal, while permanent life insurance premiums remain the same.
- Cash Value — With most permanent life insurance there is a savings component that's known as cash value. This means that the longer you pay into your policy, the more the cash value grows. Your options are choosing to cash in or borrow against your permanent life policy when you need the funds. Term insurance doesn't accumulate cash value since there isn't a savings component.
- Convertible Policies — You have the option of converting a term life insurance policy to a permanent life insurance policy. This can't be done with permanent policies.
- Death Benefits — All life insurance policies will pay a death benefit when the insured person passes away if the contract and term haven't expired and it's still in good standing.
Term vs. Permanent Life Insurance: What's Best for You?
As mentioned above, if having low monthly premiums is essential, then term life insurance is the best option for you. This insurance option also offers a one-year, guaranteed renewable term. If you have any questions about your insurance options, don't hesitate to contact your local financial advisor.