Term vs. permanent life insurance

Term life insurance is cost-effective and eventually expires, whereas permanent insurance is costly, but has no expiration date. Here’s how to decide which is best for you.

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Once you’ve calculated how much life insurance you need, you’ll need to decide what kind of life insurance policy is right for you. The two main types of life insurance are term life insurance and permanent life insurance.

Both term and permanent life insurance pay out a tax-free death benefit if you die while your policy is active. Term life insurance is active for a limited period, called the term, whereas permanent life insurance lasts as long as you continue to pay your premiums. Term life insurance is the best choice for most people, but if you have complex finances or a lifelong dependent, you may consider a permanent policy.

Key Takeaways

  • You’ll pay more for permanent life insurance than you would for a term policy with the same coverage amount

  • Permanent life insurance lasts the rest of your life and comes with a cash value savings component

  • Different types of permanent insurance grow the cash value in different ways

  • Term life is best for most people, but permanent insurance is good for high-earners with long-term financial obligations

Term vs. permanent life insurance: Quick comparison

FeaturesTerm life insurancePermanent life insurance
Duration5-30 yearsLife
Cost$20-30/monthVaries by policy type, 5-15x term life rates
Guaranteed death benefitYesYes
Guaranteed cash valueNoYes
PremiumsLevelStays level or changes based on cash value accumulation
RisksEventually expiresHigh premiums are difficult to budget long-term; cash value has low rate of return
Best forMost people whose financial obligations decrease over timePeople with lifelong dependents, high-income earners, and people subject to estate tax

Methodology: Average 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 and a $500,000 whole 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 10/08/2021.

What is term life insurance?

Term life insurance policies last up to 30 years and are typically the most affordable life insurance option. Based on Policygenius data from October 2021, 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. However, there are a few different types of term life insurance, including:

A no-medical-exam 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.

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What is permanent life insurance?

Permanent life insurance doesn’t expire as long as you don’t miss any premium payments and it 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.

There are several types of permanent life insurance, including:

Whole life insurance is the most common type of permanent insurance and is five 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.

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.

Term life$250,000$85.43
Whole life$100,000$276.00
Guaranteed issue$25,000$168.49
Simplified issue$25,000$108.25

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 $100,000 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 10/08/2021.

→ Find out how much you could pay for term life insurance

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Should you get term or permanent life insurance?

The type of life insurance 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.

You should buy term life insurance if you:

You should buy permanent life insurance if you:

Converting 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, 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 who will have dependents into old age, and the type of permanent life insurance that suits you will depend on your appetite for investment risk.

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.