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By Kacie Goff Kacie Goff's Twitter profile
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When you’re shopping for life insurance, you have options. You can choose between multiple insurance providers. You can pick the amount you want your policy to pay out when you pass away. You’ll also need to decide how long your policy will last, and that usually means choosing either term or permanent life insurance.
When it comes to term vs. permanent life insurance, what’s the difference? Which policy type is best for your situation? That’s what we’re here to find out. Use this guide to learn the basics of both permanent and term life insurance policies.
Term life insurance gives you life insurance for a set term. That means you choose a policy and a death benefit (the amount your beneficiaries will get when you pass). But you also choose a term associated with your policy.
At the end of that term (e.g., 10, 20, 30+ years), your policy is set to expire. At that time, you have options. You can let the policy expire, renew it for a new term, or — assuming your insurer allows — convert it to a permanent life insurance policy.
Why would you choose life insurance that will expire after a certain time? Simple: term life insurance policies are significantly cheaper than permanent life insurance policies. And, in some cases, you may feel you only need life insurance for a certain time.
For example, some people buy term insurance with a term that lasts the length of their mortgage or until their kids will be done with college. That way, your family can get through major financial milestones with or without you. Once the house is paid off and the kids are educated, you may not be as worried about leaving your partner without your income.
The amount you’ll pay for your term policy depends on a few things: your current age, the term of your policy, and the size of your death benefit.
CNN Money has a helpful example to give you a ballpark idea. They say that a healthy 35-year-old male buying a 20-year term policy with a death benefit of $500,000 will pay about $430 a year. At 50, that same male will pay $1,300 annually for the same policy.
Most term life insurance policies (97%, according to the Insurance Information Institute) are level-term policies, meaning you decide a term with your insurer and your death benefit stays the same throughout the term.
But there are other types of term life policies, including yearly renewable policies and return-of-premium policies. If you want to explore your term coverage options, check out our guide to term life insurance.
| Pros | Cons |
| Lower cost | Policy expiration at the end of the term |
| Flexibility in choosing a term that meets your needs | Premiums could go toward nothing if your policy expires |
| Easy to understand | Lacks the cash value component of other types of life insurance |
You can probably guess from the name: permanent life insurance is a type of life insurance that stays in effect throughout your entire life. Once you buy your policy (assuming you pay your premiums), your death benefit is guaranteed for your beneficiaries, whether you pass away in 10 years or 80.
But there’s more to the puzzle here. Most permanent life insurance policies come with a cash value component. As you pay your premiums, that money accumulates with your insurance provider. Depending on the type of policy you choose, you might get returns on that cash value in the form of dividends.
There are three different types of permanent life insurance:
This is just a quick overview. To dig deeper, check out our permanent life insurance guide.
The cost of your whole life policy depends on a bunch of different things: your age, your current health, the type of permanent life insurance you choose, the amount of your death benefit, the insurer you choose — the list goes on. We’d love to give you a figure for how much you can expect to pay, but there are too many variables here.
Generally, be prepared for permanent life insurance to cost between five and 10 times more than a term life policy. For all that extra money, you get a policy that won’t expire and a potential earnings vehicle while you’re alive.
| Pros | Cons |
| The policy lasts for life (guaranteed death benefit) | More expensive than term insurance |
| Cash value component | More complex than term insurance |
| Medical concerns arising after you buy your policy won’t affect it | If your invested cash value doesn’t perform well, you can incur losses |
| Term Life Insurance | Permanent Life Insurance | |
| Lower-cost premiums | Yes | No |
| Policy expiration | Yes | No |
| Cash value component | No | Yes |
| Level premiums | Yes* | Yes** |
*Assuming you choose a level-term policy
**Assuming you don’t change your death benefit while your policy is in force
At the end of the day, there are two key differentiators to know if you’re weighing term vs. permanent life insurance.
The first is the duration of the policy. Term insurance expires at the end of your term. You may be able to renew the policy, but that will almost definitely mean undergoing a new medical exam and paying more for your premiums moving forward. A permanent life insurance policy, on the other hand, stays in force for your entire life once you buy it.
There’s a big reason you should care here, beyond the peace of mind a guaranteed death benefit gives you. Life insurance is significantly more affordable if you buy it when you’re young. As you get older, premiums increase exponentially. Buying a permanent life insurance policy now can help you lock in lower rates for life.
The other big difference between term vs. permanent life insurance is the cash value component. Term policies don’t have it. With permanent life insurance, you get a savings/investment vehicle. That means you can use some of the premiums you pay to see money during your lifetime.
All this said you pay significantly more for the major perks of a lifelong policy and a cash value component. Families with a tight budget often choose term coverage. Although the policy will expire, it’s better than nothing. Having this type of protection in place can make all the difference for your loved ones if you pass away.
But if you can afford the premiums for permanent life insurance, you may want to opt for that policy to get one that won’t expire and that can help you see dividends while you’re alive.
In fact, you can even mix and match. Some people buy a term policy for the length and amount of their mortgage, then pair that with a permanent life insurance policy that has a smaller death benefit. The term policy can help your loved ones pay off the house if you pass away prematurely, while the permanent life policy can cover things like funeral expenses so they never have to worry.
If you’re on a budget, term life insurance is going to give you the most affordable coverage. It gives you a way to protect your loved ones — and a way to give yourself peace of mind. People often choose term insurance for:
While it’s much more expensive, permanent life insurance never expires and offers you a way to make a little money. With the dividends from your policy, you may even be able to pay your permanent life insurance premiums.
Ultimately, you might opt for this type of life insurance for:
Term and permanent coverage are the two most common types of life insurance, but they’re not your only options. For example, you might just want final expense insurance to cover your funeral costs. To help you explore all of your options, we’ve built this guide to the various types of life insurance.
Really, that depends on your unique wants and needs. Still, though, we hope we can help guide you toward the best options for you. Check out our list of the best life insurance companies to find vetted, trusted places to start shopping for quotes.
Term life insurance will trounce permanent life insurance in terms of cost every day of the week. Just remember that your policy will expire — and those lower-cost premiums could all be for nothing at that point.
Many people wait until later in life to start planning for their deaths. We get it. Nobody likes to face their own mortality. But life insurance is much cheaper if you buy it while you’re young. Shop policies now and know that they won’t get any more affordable from this point on.
