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Which is better and why: term or permanent life insurance?

Man choosing between term and permanent life insurance
Life insurance is a critical financial tool that provides protection and peace of mind for your loved ones in the event of your passing. However, choosing the right type of life insurance can be overwhelming.

In this article, we dive into the difference between term and permanent life insurance policies. Save this page as a guide to their features, benefits, and which might suit better to your unique needs.

Term Life Insurance

Term life insurance provides coverage for a specific period, typically ranging from 10 to 30 years. It offers financial protection for your beneficiaries if you pass away during this term. 

The primary term life insurance advantages are:

  1. Cost-effectiveness

Term life insurance is often more cost-effective than permanent policies. With lower premiums, it provides valuable financial protection without straining your budget.

  1. Flexibility

You can set the coverage amount and choose the period duration to match your needs. Term life insurance coverage can be for 10, 20, 30, or 100 years. At the end of the chosen period, you can renew your policy or convert it to a permanent one.

  1. Simplicity

Term life insurance is easy to understand — it has no complicated investment components. Just remember it does not accumulate any cash value over time.

If you only need coverage for a set period, such as until your children are financially independent, term life insurance might be the ideal choice for you.

Permanent Life Insurance

Permanent life insurance provides lifelong coverage, ensuring your beneficiaries receive a death benefit whenever you pass away. Basically, your coverage stays in force as long as premiums are paid. 

The primary permanent life insurance advantages are:

  1. Lifelong Protection

Your beneficiaries receive a death benefit regardless of when you pass away. This ensures peace of mind and stability for your loved ones throughout your lifetime and beyond.

  1. Premium Stability

Premiums for permanent policies usually stay fixed. Factors such as age and smoking status determine them once you apply for coverage. After receiving your rate, you can expect to pay the same amount throughout the policy's lifetime. Obtaining a policy at a younger age and in good health typically results in lower premiums. 

  1. Cash Value Accumulation

Permanent life insurance often features a savings component that grows in cash value over time. That can be accessed through loans or withdrawals. However, some simplified permanent plans omit the investment aspect, resulting in lower premiums.

If you're looking for lifelong coverage coupled with investment potential, permanent life insurance might be the optimal choice for you.

Which life insurance is better?

The only answer to this question is to extend it to “Which life insurance is better for you?”. Because all that matters in this case are your goals, circumstances, and obligations. Your life situation is the key to choosing between term and permanent life insurance.

So, to get your individual answer, follow the steps below:

☑️ Determine the duration.
Do you need coverage for a specific period? Or is lifelong protection more suitable for your circumstances?

☑️ Evaluate the affordability of premiums.
How will they fit into your budget both now and in the future?

☑️ Think about investment goals.
Are you interested in cash value accumulation? Or do you need just transparent life insurance coverage with no frills?

If you still can’t decide, talk with one of our licensed advisors. Help from a qualified and experienced pro who can provide personalized recommendations can be a real time-savior! Plus, it’s free, and there is no obligation after.

Life situations examples

Let’s imagine hypothetical scenarios for an individual seeking life insurance. In one case, term life insurance might be preferable; in another, a permanent plan will suit better.  

     ▪️ Term Life Insurance scenario

As a part of a couple with a mortgage and young children, you opt for a 30-year term life insurance policy. You want to cover the mortgage balance and provide income replacement for your spouse and kids until they become independent. Since your financial obligations are temporary, term life insurance is the preferable option.

     ▪️ Permanent Life Insurance scenario

You're a high-net-worth individual with estate planning considerations. You want to ensure your heirs receive a tax-free inheritance and have liquidity to cover estate taxes. In this case, permanent life insurance means they will receive the death benefit at any time the moment you pass away and will use it to cover all of that. Additionally, if the policy has a cash value feature, it can provide growth potential over time.

To conclude

Term life insurance provides coverage for a set period with lower premiums. Permanent life insurance offers lifelong coverage and can have extra benefits. When choosing between them, you should start by determining your goals, obligations, and financial situation. 

And don’t hesitate to consult with a professional to explore your options and make an informed decision. Life insurance can be more than you expect from it!

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