Permanent vs. Term Life Insurance: What’s the Difference?

When planning for your family’s financial future, life insurance is one of the most important tools you can put in place. But if you’ve ever researched your options, you’ve probably seen two main categories: term life insurance and permanent life insurance.

While both provide financial protection for your loved ones, they work very differently — and choosing the wrong one could cost you money or leave gaps in coverage. In this guide, we’ll break down the differences between term and permanent life insurance, the pros and cons of each, and how to decide which may be right for you.

What Is Term Life Insurance?

Term life insurance is the simplest and most affordable form of life insurance.

• It provides coverage for a set period — usually 10, 20, or 30 years.
• If you pass away during that time, your beneficiaries receive the death benefit.
• Once the term ends, coverage expires unless you renew (at a much higher premium).

Think of it as renting life insurance: you pay for protection while you need it, but when the term is over, the coverage disappears.

Key Features of Term Life Insurance

• Affordable initial premiums
• Predictable payments for the length of the term
• No savings or cash value component
• Often renewable or convertible into permanent coverage

What Is Permanent Life Insurance?

Permanent life insurance lasts for your entire lifetime, as long as premiums are paid. Unlike term, it doesn’t expire after a set period.

Permanent insurance also has a cash value component, which works like a built-in savings account. Part of your premium goes toward building this cash value, which grows tax-deferred over time. You can borrow against it, withdraw it, or use it to help pay premiums.

Types of Permanent Life Insurance

• Whole Life Insurance: Fixed premiums, guaranteed death benefit, and guaranteed cash value growth.
• Universal Life Insurance: Flexible premiums and death benefits, with interest-based or market-linked cash value growth.
• Variable Life Insurance: Cash value invested in subaccounts tied to the stock market (higher risk, higher growth potential).

Cost Comparison: Term vs. Permanent

One of the biggest differences is cost.

• Term insurance premiums are typically much lower — sometimes 5 to 15 times less than permanent coverage for the same death benefit.
• Permanent insurance has higher upfront costs, but it builds equity (cash value) and guarantees lifelong protection.

Example:

• A healthy 35-year-old may pay around $25/month for a 20-year, $500,000 term policy.
• The same individual could pay $300–$500/month for a permanent policy with the same death benefit.

Pros and Cons of Term Life Insurance

Pros

• Low cost, especially for young and healthy individuals
• Simple and easy to understand
• Best for temporary needs (like replacing income during child-raising years or paying off a mortgage)

Cons

• Expires at the end of the term
• Renewal premiums increase significantly with age
• No cash value — you don’t build savings or equity

Pros and Cons of Permanent Life Insurance

Pros

• Coverage lasts for life (guaranteed death benefit if premiums are maintained)
• Builds cash value that grows tax-deferred
• Potential to borrow against policy
• Useful for estate planning, legacy planning, or providing for dependents with lifelong needs

Cons

• Much higher premiums than term life
• More complex structure (cash value, loans, interest rates, policy charges)
• If managed poorly, loans and withdrawals can reduce or even lapse the policy

Which Is Right for You?

The best choice depends on your financial goals, family situation, and long-term needs.

• Choose Term Life Insurance if…
  • You want the most coverage for the lowest cost
  • You only need protection for a certain time (mortgage, raising kids, etc.)
  • You’d rather invest money separately than pay for cash value inside insurance

• Choose Permanent Life Insurance if…
  • You want guaranteed lifelong protection
  • You’re interested in building cash value and using life insurance as a financial planning tool
  • You have estate or legacy planning needs

Many families use a combination of both — for example, purchasing a large term policy for income protection while adding a smaller permanent policy for lifetime needs.

Final Thoughts

Both term life insurance and permanent life insurance can play important roles in protecting your loved ones. Term is cost-effective and temporary, while permanent offers lifetime protection and savings. The right choice depends on your unique needs, budget, and long-term goals.

Life insurance is not just about numbers — it’s about peace of mind. Having a trusted advisor guide you through your options ensures you make the right decision for your family.

🧑‍💼 Written by Brent Meyer, founder of SafeMoney.com. With more than 20 years of hands-on experience in annuities and retirement planning, Brent is committed to helping Americans make informed, confident financial decisions.

Disclaimer: This article is for educational purposes only and should not be considered financial, tax, or legal advice. Indexed Universal Life policies vary by insurer and state, and guarantees are subject to the claims-paying ability of the issuing company. Consult with a licensed financial professional before making decisions.