Difference between Term and Permanent Life Insurance Policy

When it comes to purchasing a life insurance premium, it can be a real challenge to decide what type of policy will suit your needs. By learning the different attributes of life insurance policies and by talking to a professional life insurance agent, you can acquire the knowledge to decide which policy is best for you.

Term Life Insurance

As the name suggests, term life insurance provides coverage for a certain time interval as mentioned in your policy. This means that the death benefit will only be provided if you die within that specified time period. For this reason, term life insurance is much cheaper than permanent life insurance.  

Furthermore, term life insurance comes in two forms, level term and decreasing term. In the former, you will be paid the same compensation or benefit irrespective of when you die during the term. Whereas in the latter, the death benefit decreases and depends on the duration of the term. Nevertheless, level term policies are more common when it comes to term life insurance.

Many life insurance policies can be renewed, which means if the term ends, you have the flexibility to renew your policy. Although, this renewal may depend on certain factors such as passing a medical exam, and may also involve an increased premium. Up-to-date reports mention that an insurer will not renew the policy finishing after 80 years of age.

Permanent Life Insurance

Unlike term life insurance, a permanent Life Insurance Policy pays the death benefits irrespective of whether you die the day after signing or 50 years later. Permanent life insurance policies are tempting because of their capability to grow tax-deferred over a certain time interval. Because of these benefits, permanent life insurance is more expensive than term life. Permanent life insurance policies also come with a wide range of options to choose from.

Permanent life insurance options are categorized as:

Whole life policies offer both death and savings account benefits. If you decide to buy a whole life policy, you agree to pay a certain amount for a fixed death benefit.

Universal life policies offer an additional flexibility, allowing you to vary the amount that you pay. You may be able to get a larger death benefit in this way.

Variable life policies include a death benefit with a savings account that you can invest in bonds, stocks or mutual funds.

Variable-universal policies congregate the characteristics of variable and universal life policies. Meaning that you have the investment alternatives of a variable policy and the flexibility of premium payments of a universal policy.