There are two basic types of life insurance: term life insurance and permanent life insurance. Term life lasts for a limited period of time, while permanent life lasts your entire life as long as you pay the premiums. Read on to learn the differences between these two types of life insurance to decide what’s right for you.
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Term vs. permanent life insurance: Quick comparison
Both term and permanent life insurance pay out a tax-free death benefit if you die while your policy is in force, which can be used to pay off outstanding debt or cover a variety of expenses when you’re gone. Because of its affordability, term life insurance is the best choice for most people. But permanent life insurance makes more sense if you have complex finances or require lifelong coverage.
| Features | Term life insurance | Permanent life insurance |
|---|---|---|
| Duration | Up to 40 years | Life |
| Cost | $20 to $30/month | Varies by policy type, 5 to 15 times term life rates |
| Guaranteed death benefit | Yes | Yes |
| Guaranteed cash value | No | Yes |
| Premiums | Level | Varies by policy |
| Risks | Can expire before you die | High-cost premiums are difficult to maintain and cash value has low rate of return |
Methodology: Average term life insurance cost calculated based on rates for non-smoking males and females between 20 and 40 years old in a Preferred rate class, obtaining a 20-year, $500,000 term life insurance policy. Life insurance averages are based on a composite of policies offered by 10 carriers that offer policies through the Policygenius marketplace. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 2/1/2022.
What is term life insurance?
Term life insurance policies last up to 40 years and are typically the most affordable life insurance option. Based on Policygenius data from February 2022, a 35-year-old male non-smoker could buy a 20-year, $500,000 policy for approximately $30 per month. You can add riders to customize your coverage, but the standard term life insurance policy doesn’t come with any additional features.
Most term life policies are level term life insurance, meaning your premiums and death benefit remain the same for the life of the policy.
A no-medical-exam term policy is a good fit for healthy people who want to skip the medical exam. Group life insurance, which is usually paid for in part or in whole by your employer, supplements your personal policy. Other variations of term life insurance tend to offer less potential benefit for the cost of the policy, so we only recommend them under specific circumstances. You can speak to one of our licensed agents to get expert advice and find the right policy for you.
What is permanent life insurance?
Permanent life insurance never expires and comes with a savings-like component called the cash value. Because of the lifetime coverage and cash value, permanent policies are significantly more expensive than term policies. The high premiums are generally difficult to maintain over several decades, and many policies lapse due to nonpayment.
Types of permanent life insurance
Whole life insurance is the most common type of permanent insurance and is 5 to 15 times more expensive than term life. Whole, variable, and universal life insurance each grow the cash value in different ways. The policy that's best for you will depend on your risk tolerance, as well as how you plan to pay your policy’s premiums. Final expense insurance is best for older or less healthy people who might not qualify for a traditional policy.
→ Compare term vs. whole life insurance
Term vs. permanent life insurance: Cost comparison
The table below compares sample monthly premiums for a 20-year term policy, a whole life policy, and two final expense policies for a 55-year old male. Premiums for universal, variable, and variable universal life policies depend on your policy terms, as well as fluctuations in your cash value.
| Policy | Death benefit | Monthly premium |
|---|---|---|
| Term life | $250,000 | $84.03 |
| Whole life | $250,000 | $692.00 |
| Guaranteed issue | $25,000 | $168.49 |
| Simplified issue | $25,000 | $85.06 |
Methodology: Sample premiums are for a 55-year-old male non-smoker with a Preferred health rating, buying a 20-year, $250,000 term life insurance policy, a $250,000 whole life insurance policy from MassMutual paid up at 100 years old, a $25,000 guaranteed issue life insurance policy from AIG, and a $25,000 simplified issue life insurance policy from Mutual of Omaha. Term life insurance average is based on a composite of policies offered by Policygenius from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Protective, Prudential, SBLI, and Transamerica and may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 2/1/2022.
→ Find out how much you could pay for term life insurance
Should you get term or permanent life insurance?
The type of life insurance coverage you buy depends on your financial plans. Most insurance shoppers will likely find a term life policy fits their needs, but there are some situations when a permanent policy is a better choice.
Buy term life insurance if you:
Want the most affordable life insurance
Will retire with enough savings to self-insure
Don’t plan to financially support adult children
Have outstanding debts or a mortgage
Buy permanent life insurance if you:
Have lifelong dependents, like children with disabilities
Plan to use the death benefit to pay estate taxes
Are investing in life insurance for retirement
Need funds for funeral expenses
Aren't eligible for traditional coverage
How to convert from term to permanent life insurance
If you’ll still have financial obligations when your term policy expires, you can convert it into a permanent policy with a term conversion rider. If you do so, you’ll need to activate the rider before your policy expires in order to avoid any coverage gaps.
The choice between term and permanent insurance depends largely on your long-term financial needs. If you plan to self-insure once your debts are paid off, term life insurance will give you affordable coverage for only as long as you need it. Permanent life insurance is best for those with complicated financial assets or financial dependents.
Still not sure which type of life insurance is best? A Policygenius agent can help you compare term vs. permanent life insurance.
Frequently asked questions
What is the difference between term and permanent life insurance?
Term life insurance expires after a set period, whereas permanent life insurance coverage lasts for life. Permanent insurance also comes with a cash value savings component and is costlier than term life insurance.
Is permanent life insurance a good investment?
Permanent life insurance isn’t a valuable investment for most people because return rates are lower than standalone investment accounts and premiums are high.
Who should get permanent life insurance?
Permanent life insurance is best for people who have lifelong financial obligations or a high net worth. The majority of people find term life insurance better suited for their financial plans and significantly more affordable.
