What term life is
Term life insurance covers you for a fixed period, usually 10, 15, 20, or 30 years. If you die during the term, the carrier pays the death benefit to whoever you named. If you outlive it, the policy simply ends. Premiums are level for the term and are the lowest of any kind of life insurance for the same amount, because most term policies never pay out.
That makes term the natural tool for a need with an end date: replacing your income until the kids are grown, covering the mortgage until it's paid, funding college. Many term policies can be converted to permanent coverage during the term without a new medical exam, which matters if your health changes.
What permanent life is
Permanent life insurance is designed to stay in force for your whole life, as long as premiums are paid. The main kinds are whole life, where premiums and the death benefit are fixed and cash value grows at a guaranteed rate, and universal life, where premiums are flexible and cash value grows at a declared or index-linked rate. Indexed universal life ties that growth to a market index with a cap and a floor.
Because the policy is expected to pay out eventually, premiums are several times higher than term for the same death benefit. In exchange you get coverage that doesn't expire and a cash value you can borrow against. Permanent coverage fits needs that never end: a funeral, a spouse who will always depend on you, a child with lifelong needs, or estate planning.
| Term | Permanent | |
|---|---|---|
| Length of coverage | 10 to 30 years | Your lifetime |
| Premium for the same benefit | Lowest | Several times higher |
| Cash value | None | Builds over time |
| Best for | Needs that end: income, mortgage, college | Needs that don't: final expenses, lifelong dependants |
Where people go wrong
- Buying permanent coverage for a temporary need. A 30-year-old with a 25-year mortgage and two young kids usually needs a large amount of coverage for about 25 years. Term does that for a fraction of the cost.
- Buying only term and letting it lapse at 65 with nothing behind it. A small permanent or final-expense policy alongside the term covers what remains.
- Treating cash value as a savings account. It grows, but charges come out first and the early years are usually thin. It's a feature of coverage you'd keep anyway, not a reason to buy.
How an adviser decides
The question is never “term or permanent”. It's how much coverage you need, and for how long. Income, debts, savings, and dependants set the amount. The amount and its time horizon then sort into the products: the part that ends gets term, the part that doesn't gets permanent. Many plans end up as a large term policy with a small permanent one beside it, sometimes stacked so coverage steps down as the mortgage shrinks and the kids grow up.