Term vs. permanent life insurance, in plain language
What each type is built for, what it costs you in trade-offs, and the questions worth asking before you choose.
By the AllSet team · Updated · 4 min read
Term life: coverage for a set stretch of time
Term life insurance covers you for a fixed period, often 10, 20 or 30 years. If you die during that period, the people you named (your beneficiaries) receive the death benefit.
Because it's designed for a limited time, term coverage usually costs less per dollar of protection than permanent coverage, especially when you're younger and healthier. When the term ends, the coverage ends. Some policies let you renew, usually at a higher price, or convert to permanent coverage without a new medical exam.
Permanent life: coverage designed to last
Permanent life insurance, including whole life and universal life, is designed to cover you for life as long as the premiums are paid. Many permanent policies also build cash value over time.
The trade-off is cost: for the same death benefit, permanent coverage costs more than term. The cash value features also come with rules, fees and limits that are worth understanding before you buy.
A simple way to think about it
Start with what you're protecting and for how long, not with the product.
- Protecting people who depend on your income until a mortgage is paid or kids are grown? That's a time-limited need, which is what term coverage is designed for.
- Covering a need that doesn't go away, such as final expenses or leaving a set amount to someone? That's what permanent coverage is designed for.
- Many families use a mix. There isn't one right answer.
Questions worth asking before you choose
- Do the premiums stay level, or can they change?
- Can this policy be renewed or converted later, and until what age?
- What happens if I miss a payment? How long is the grace period?
- If there's cash value, what are the fees and what happens if I withdraw or borrow from it?
General information, not advice