The understanding of the difference between term and permanent life insurance can set you in place to know your financial goals and needs before making any choice. Both are reviewed below.

Term Life Insurance

–  Definition:   Term life insurance pays a death benefit only if you die during the time, or term, of the policy, which may last for 10, 20, or 30 years.
–  Cost:  Generally, the cost is lower than permanent life insurance because it lacks cash value, providing for only the death benefit.
–   Best for:  People who want value-based coverage that only protects the financial needs of the family, up to a certain time, for instance, when children are grown or a mortgage is paid off.

Permanent Life Insurance
Permanent life insurance:  an insurance that caters to the whole life of an insured person provided the premiums are paid. This includes whole life, universal life, and variable life, with some features dealing with the way it accumulates cash value and its flexibility in allowing for premiums.
•   Cash value:  The critical characteristic in this insurance, therefore, is its ability to develop value over time, in that policyholders can, at a later time, be able to borrow against it or even pay for premiums. The cash value grows at a rate specified by the policy, or it can grow based on investments.
–   Cost:   More expensive than term life insurance due to the cash value component and lifelong coverage.
–   Best for:  People who might need to implement these financial planning tools into their estate planning or just prefer the protection of lifelong coverage and the opportunity to build cash value.

Key Differences

1. Duration: Term is for a specific period, while permanent lasts a lifetime.
2. Cash Value: Permanent policies can build cash value; term policies do not.
3. Cost: Term insurance is initially more affordable than permanent insurance.
4. Purpose: Term insurance is most often used to fulfill temporary needs, while permanent insurance may provide one of the elements necessary for a person’s long-range financial program.

Choosing Between Term and Permanent Life Insurance When deciding between term and permanent life insurance, consider your financial situation, goals, and needs: – If you need coverage for a specific time frame or have a limited budget, term life insurance might be the best fit. Permanent life insurance may be a better fit for your needs if you are looking for lifelong coverage, building cash value from the policy, or using life insurance as part of your estate planning. The diminishing marginal utility law states that with every additional unit of a good, the extra satisfaction reduces. Thus, on an overall basis, taking the help of a financial advisor or an insurance professional would be highly recommended to give apt advice in making the right call-in relation to its standing.


Have a question which insurance is right for you? Contact:


Tim Elenz

847-397-5306 direct