Term covers a set number of years for a level premium and then ends. Permanent is built to last your whole life and builds cash value slowly. Illustrative, not to scale.
What it is
Term life covers you for a fixed period, usually 10, 20 or 30 years, for a premium that stays level for that term. If you die during the term, the death benefit is paid tax-free to your beneficiaries. If you outlive the term, the policy ends and nothing is paid.
Permanent life (whole life, universal life and their variations) is designed to stay in force for life as long as premiums are paid. Part of the premium builds a cash value you can borrow against or withdraw, subject to the policy’s rules, charges and tax treatment.
Both are contracts with an insurer. The death benefit is a guarantee of that insurer, which is why its financial strength matters.
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Who it is for
- Term
- People whose need is large but temporary: a mortgage, children at home, a business loan with a personal guarantee. Most families are best served by term.
- Permanent
- People with a need that does not end: a dependant with a lifelong disability, an estate that will owe tax, a business with a buy-sell agreement, or someone who has filled their other tax-advantaged accounts and wants a conservative place for more.
- Either
- Anyone whose death would leave someone else unable to pay for housing, childcare or education.
What it is not
- It is not an investment in the ordinary sense. Permanent policies build cash value slowly and carry charges, especially in the early years. If growth is the goal, there are usually cheaper ways to get it.
- It is not a replacement for an emergency fund or a retirement account.
- Term insurance is not wasted money if you outlive it. You bought protection for the years you needed it, the same as home insurance on a house that did not burn down.
The questions we ask
- Who relies on your income today, and for how many more years?
- What would need to be paid off or paid for if you died this year: mortgage, debts, childcare, school?
- What cover do you already have through work, and does it travel with you if you leave?
- How is your health, and do you smoke or use nicotine? Both set the premium.
- Is the need temporary or lifelong?
- What could you comfortably pay each month without resenting it in year five?
Costs and trade-offs
Term is inexpensive for healthy people under 50 and gets more expensive with age and health conditions. A 20-year term policy for a healthy 35-year-old often costs less per month than a streaming subscription for a benefit in the hundreds of thousands. Exact premiums depend on age, health, amount, term length and carrier, and are quoted after underwriting.
Permanent policies cost several times more than term for the same death benefit. Much of the early premium goes to charges and commission, so cash value is small for years and surrendering early can return less than you paid. Loans against cash value reduce the death benefit and can lapse the policy if unmanaged.
If a permanent policy is being pitched to you as a way to get rich, slow down. It is a conservative, long-horizon contract with guarantees, not a growth engine.