Term fits most families who need a big payout for a set time, like while raising kids or paying a mortgage. Permanent fits a person who needs coverage for life, wants level premiums for life, or wants cash value.
Term vs Permanent at a glance
| Term | Permanent | |
|---|---|---|
| How long it lasts | A set time, like 10, 20 or 30 years. | For life, if premiums are paid. |
| Price | Lower at the start. | Higher at the start. |
| Premiums over time | Level for the term, then can rise a lot at renewal. | Many types stay level for life. |
| Cash value | None. | Yes. Grows tax deferred. |
| If you outlive it | No payout. | Pays whenever you die. |
| Policy loans | No. | Yes. Unpaid loans reduce the payout. |
| Canceling early | Just stop paying. No cash back. | Surrender charges can be large in early years. |
| Convert later | Many term policies can convert to permanent without a new exam. | Already permanent. |
What to know
Term life covers you for a set number of years. If you die in that time, it pays. If you live past it, it does not. Triple-I says term costs less than permanent coverage and is a good match for a set need, like income or a mortgage.
Permanent life lasts your whole life. Part of what you pay builds cash value. Triple-I says that savings grows tax deferred, and you can borrow against it. But California says surrender charges can be large, so it is a poor choice if you might cancel early.
Term often wins for young families on a budget. Permanent wins when you need coverage that never ends, like for a child who will always need care or for estate costs. The NAIC says that for a lifetime need, cash value insurance may be more cost effective.
- Your need ends at a set time, like when the house is paid off.
- You want the most coverage for the lowest price now.
- You may want to convert to permanent later.
- You need coverage that lasts your whole life.
- You want a premium that does not rise as you age.
- You will keep the policy for many years and want cash value.
Common questions
Is term life a waste if I outlive it?
No. You paid to protect your family during those years. It is like car insurance when you do not crash.
Can I switch from term to permanent?
Many term policies have a convert option. California says you can often convert up to a certain age without a new exam, usually at a higher premium.
Why does term cost so much more when I renew?
The new price is based on your age at renewal. Triple-I says it can go up a lot each time.
