Term vs. Permanent Life Insurance
Plain English
Term life insurance covers you for a set number of years and is usually the cheapest way to get a large death benefit. Permanent life insurance (whole, universal, indexed universal) lasts your whole life and builds cash value, but costs more.
What is it?
Term life insurance provides a death benefit for a defined period (e.g. 10, 20, or 30 years), with no cash value component. Permanent life insurance (whole life, universal life, indexed universal life, variable universal life) is designed to last for life and typically includes a cash-value component that can grow over time, subject to policy charges and, for indexed/variable products, market-linked or investment performance.
Why does it matter?
The right category depends heavily on the need being addressed: temporary needs (a mortgage, income replacement while children are young) versus permanent needs (estate liquidity, lifelong dependents, final expenses) point toward different structures — and cost differs substantially between them.
How does it work?
Term premiums are lower because the insurer is pricing a temporary, level risk with no cash-value obligation. Permanent policies price in lifelong coverage plus, for cash-value products, the cost of building and crediting that cash value — which is why premiums are meaningfully higher for the same death benefit.
Risks and limitations
Term coverage generally ends when the term ends unless renewed (usually at a higher premium) or converted to a permanent policy. Permanent policies carry lapse risk if premiums and cash value can't cover ongoing policy charges, and non-guaranteed values (common in universal and indexed universal life) can perform below illustrated projections.
Questions to ask a professional
Is this need temporary or permanent? What happens to my premium at the end of a term policy? What guaranteed versus non-guaranteed elements exist in a permanent policy I'm considering?