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Term Insurance vs. Permanent Life Insurance: What Is the Difference?

life insurance policy under pen

Determining which type of life insurance is suitable for you can be a long and grueling process. Begus Insurance Group agents make this process easy by consulting with potential policyholders and listening to their needs. There are many distinctions between Term Life insurance and Permanent life insurance. Both underwriting requirements and personal needs are major factors in determining which type of policy will prove to be most beneficial for your situation.

Term Life Insurance

Term Life insurance is a type of life insurance that functions based on a predetermined period. This form of insurance consists of a relatively short premium paying period in which the policyholder receives coverage. If the policyholder dies during the policy term, the policy’s beneficiary will immediately receive the death benefit (lump sum). Terms can range anywhere from 10 to 30 years. The length of the term may be determined based on several factors: budget, necessity, and finances. 

Function

Term Life insurance policies are most often used to secure loans from lending services. Term Life policies can be used as collateral if the policyholder needs to secure a loan. However, the main function of a Term Life insurance policy is to provide a sufficient amount of coverage over a designated period.

Pricing

Term Life insurance is among the most affordable and budget-friendly forms of life insurance. Also, term Life policies have shorter lifetimes with no cash value and so the premiums and lump sums may be significantly smaller than those of permanent life policies. Term Life is best for young and healthy adults who aim to be proactive in their loved one’s financial security or anyone attempting to secure a loan.

Features

Term Life insurance is a distinctive form of life insurance with many features. In addition to its function and affordability, Term insurance may include added riders that pertain to the needs of the named insured. Certain riders are specific to term insurance, such as extended-term, child-term, and spouse riders.

One very important distinction between Term Life insurance and Permanent Life insurance is cash value and savings components. Term Life insurance does not accumulate cash value nor does it feature a savings element. 

Term Life insurance is specified to a certain age at which time the policy will terminate. In contrast, permanent life insurance will not terminate or lapse until the policyholder concludes the premium payment, the policyholder dies, or the policyholder reaches age 100.

Permanent (Whole) Life Insurance

Permanent Life insurance offers financial security to the most important people in your life. Also, permanent life insurance does not operate in terms and therefore only terminates at the death of the named insured. Maturity of the policy occurs when and if the policyholder reaches age 100. 

Function

Permanent life insurance is the purest form of life insurance. This type of life insurance aims to protect the financial security of your loved ones throughout the course of your life.

There are many features and riders available with a Permanent Life insurance policy. Therefore, permanent life insurance is suitable for almost everyone’s needs. However, rates for Permanent Life insurance differ from Term Life insurance and are usually more expensive.

Features

Permanent Life insurance features a cash value component. This component may be borrowed from at any time, utilized to lower the premium, add to the death benefit, or use a reduced paid-up alternative. 

This type of life insurance also features many riders that are specific to the policy type. Return of premium riders, term insurance riders, and automatic premium loan riders are all specific riders only available in a Permanent Life insurance policy.

Two Distinct Policies

When considering Term vs. Permanent Life insurance, customers should take a look at the pros and cons of each in relation to their needs: 

Term Life insurance is a policy with a life span (most commonly, people use it to secure loans). This form of life insurance features policy-specific riders and comes at an affordable rate for young adults who happen to be healthy. 

Permanent Life insurance remains in effect until the death of the named insured or maturity occurs at age 100. Also, permanent Life insurance also offers policy-specific riders. Permanent Life insurance features a variety of premium payment options and accumulates cash value that can be utilized in many ways. 

Finding the right policy can be difficult, but Begus Insurance Group makes the process both easy and memorable. Contact us today for your free consultation!