Term vs. Permanent Life Insurance: What’s the Difference & Which One Should You Get?

There are several differences between term vs. permanent life insurance, including coverage duration, cash value and premiums.

Traditionally, term life insurance is the more affordable option, but the premiums may increase at renewal. Permanent life insurance has higher costs initially, but they stay level for the duration of the policy.

While most people prefer term-life insurance, some situations may warrant permanent life insurance, such as parents taking care of a lifelong dependent or seniors intending to use the cash value component as supplementary income later in life.

• Term vs. Permanent Life Insurance
• Cost Comparison
• Which One Should You Get?
• Which One Should Seniors Get?
• FAQs

If you need short-term coverage, a term life insurance policy may be better than permanent life insurance. You will need to choose a term length for your needs and decide whether to renew the policy after it expires. Term life insurance is more affordable initially, but premiums my increase after renewal.

Permanent life insurance is costlier, but offers coverage for a lifetime and does not require renewal. Policyholders make standard payments for the duration of the policy. Unlike term life insurance, permanent coverage comes with a cash value component.

Although both term life and permanent life insurance policies aim to secure the financial future of your loved ones should you die unexpectedly, these two policy types differ significantly.

A term vs. permanent life insurance comparison shows that term life policies are ideal if you need affordable short-term coverage. Permanent life insurance is more suitable if you are looking for long-term coverage with cash-value benefits.

On average, the cost of permanent vs. term life insurance may vary significantly, with permanent life insurance costing up to 20X more than a term life insurance policy. MoneyGeek compared life insurance rates across various demographics including age, location and coverage amount. You can use the following infographic to compare monthly premiums for term and permanent life insurance policies.

Although permanent life insurance seems appealing to many consumers due to the extended coverage and cash value component, term life insurance is attractive because it costs less and may offer higher benefits, despite offering short-term protection.

Parents seeking to protect their children financially may not need permanent life insurance because their dependents will eventually become independent.

The best option when you’re considering term life insurance vs. permanent life insurance depends on your overall financial health and goals.

Generally, term life insurance policies suit spouses or parents who wish to safeguard their children’s education or cover mortgage payments in case they die before those obligations are met.

Permanent life insurance may suit individuals seeking lifetime coverage and interested in retirement savings. Policyholders can build the savings component by making higher payments. They can later invest, withdraw or borrow against the cash value.

Term life insurance offers better coverage per premium dollar, although the rates generally increase at each renewal cycle and are more expensive with advanced age.

While the opposite is true for permanent life insurance, some may find this option ideal due to the fact that it does not require renewal. Although many people benefit from the cash value component, this amount usually remains with the insurer upon death.

You can use the following table to compare the benefits of various life insurance policies for senior buyers.

Term life insurance is better than permanent life — in spite of the lack of cash value — for most people, who can invest additional funds in alternative saving vehicles. Permanent life insurance may be preferable in rare situations, and its cost can be significantly higher.

The following table highlights why term life insurance may be more advantageous than permanent coverage.

The choice between term and permanent life insurance policies depends on your needs. MoneyGeek responded to the following questions to help you understand the difference between the two policy types.