There are two basic types of life insurance: term life insurance and permanent life insurance. The main differences between these two types of life insurance include how long the coverage lasts, how much premiums cost, and which features the policies offer.
Term vs. permanent life insurance: What’s the difference?
Both term and permanent life insurance pay out a tax-free death benefit if you die while your policy is active, but they differ in many ways, including cost, duration, and policy features.
Term life insurance
Permanent life insurance
Up to 40 years
$20 to $30/month
$400 to $700/month
Guaranteed death benefit
Cash value account
Varies by policy
Can expire before you die
High-cost premiums are difficult to maintain and the cash value can have low rates of return
What is term life insurance?
Term life insurance is one of the most straightforward and affordable types of life insurance — you pay premiums for a set number of years, and if you die while your policy is active, your beneficiaries can claim a sum of money called the death benefit, tax-free.
Term life insurance provides a financial safety net when you need it the most — like when you’re paying off a mortgage or raising children.
At the end of the term, your coverage will expire, unless you choose to renew your policy.
Many term life policies also give you the option to convert your coverage into a permanent policy before the end of the initial term.
Most term life policies are level term life insurance, meaning your premiums and death benefit remain the same for the life of the policy. Below are a few other common types of term life policies.
Types of term life insurance
Common life insurance term lengths
What is permanent life insurance?
Permanent life insurance is a type of coverage that never expires and comes with a savings-like component called the cash value. Because of these features, permanent life insurance policies are significantly more expensive than term life policies.
Permanent life policies are best used for specific purposes — like estate planning or providing for a lifelong dependent.
High-net-worth individuals can also use the cash value feature as an additional investment vehicle, if they’ve already maximized contributions to other tax-advantaged accounts, like a Roth IRA or 401(k).
Overall, the high premiums can be difficult to maintain over several decades, and many permanent policies lapse due to nonpayment.
Whole life insurance is the most common type of permanent insurance. It comes with level premiums and a cash value that earns interest based on a set rate.
Other common types of permanent coverage include variable and universal life insurance. 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 budget and risk tolerance when it comes to investments.
Final expense insurance is a type of permanent policy that’s best for older adults, people who might not qualify for a traditional policy, or people buying life insurance for the purpose of covering end-of-life expenses, like a funeral.
Types of permanent life insurance
Term vs. permanent life insurance: Cost comparison
A 30-year-old female who doesn’t smoke could pay $22.98 per month for a $500,000 term life policy that lasts 20 years. She could pay $408 per month for $500,000 of whole life insurance coverage. Your rates depend on your age, gender, health, and how much coverage you’re buying.
For instance, a 50-year-old male who doesn’t smoke could pay $56.69 per month for a $250,000 term life policy that lasts 20 years. On the other hand, he’d pay $543 per month for $250,000 of whole life coverage that doesn’t expire. The table below compares sample monthly premiums for a 20-year term policy, a whole life policy, and a final expense policy.
Premiums for universal, variable, and variable universal life policies depend on your policy terms, as well as fluctuations in your cash value, so the best way to get a quote for these policy options is to work directly with a licensed life insurance agent.
Type of policy
Do you need term or permanent life insurance?
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 financial safety net for your loved ones
Will retire with enough savings to self-insure — meaning you can cover your financial obligations on your own
Don’t plan to financially support adult children
Have outstanding debts or a mortgage
Buy permanent life insurance if you: