Term vs. permanent life insurance

Term life insurance lasts for a set number of years, so it’s a cheaper option than permanent life insurance, which never expires and usually comes with cash value. Learn the differences between them to decide which is best for you.

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Amanda ShihEditor & Licensed Life Insurance ExpertAmanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.&Katherine MurbachEditor & Licensed Life Insurance AgentKatherine Murbach is a life insurance and annuities editor, licensed life insurance agent, and former sales associate at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

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Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Updated|3 min read

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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.

Key takeaways

  • Term life insurance is much more affordable than permanent life insurance.

  • Term life is the best option for most people who want to provide a financial safety net for their family.

  • Permanent life insurance is significantly more expensive than term life, because it doesn’t expire and comes with a cash value feature.

  • Permanent life policies can be a good option for high-net-worth individuals or people with lifelong dependents.

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

Duration

Up to 40 years

Lifetime

Cost

$20 to $30/month

$400 to $700/month

Guaranteed death benefit

Yes

Yes

Cash value account

No

Yes

Premium payments

Level

Varies by policy

Risks

Can expire before you die

High-cost premiums are difficult to maintain and the cash value can have low rates of return

Collapse table

Methodology: Average term life and permanent life insurance rates are calculated based on rates for non-smoking males and females between 20 and 40 years old in a Preferred health classification class obtaining a $500,000, 20-year term life insurance policy and a $500,000 whole life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, MassMutual, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra and Transamerica. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies available in all states. Rate illustration valid as of 01/01/2024.

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

Learn more: Compare term vs. whole life insurance

Ready to shop for 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

Coverage amount

Monthly premium

Term life

$250,000

$56.69

Whole life

$250,000

$543.00

Final expense

$25,000

$71.89

Methodology: Average monthly rates are for a 50-year-old male non-smoker with a Preferred health classification obtaining a 20-year, $250,000 term life insurance policy, a $250,000 whole life insurance policy, and a $25,000 simplified issue final expense life insurance policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra and Transamerica. Whole life insurance rates are based on policies offered by Policygenius through MassMutual and Mutual of Omaha. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 01/01/2024.

Lean more: Calculate how much life insurance you need

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:

Authors

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Katherine Murbach is a life insurance and annuities editor, licensed life insurance agent, and former sales associate at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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