Term vs. permanent life insurance

Find out which type of life insurance policy may be optimal for you, your loved ones and your financial situation.

Life insurance comes in many different forms which can fall into two categories: term life insurance and permanent life insurance. Both types can provide financial protection to your family, but they differ in terms of coverage, duration, features and benefits.

As you consider which policy may be right for you and your loved ones, we can help you evaluate the pros and cons of term vs. permanent life insurance, as well as recommend options for a policy and carrier.

What is term life insurance?

Term life insurance provides coverage at a fixed premium for a set time period. It can be a cost-effective way to secure financial protection for loved ones. With this type of policy:

You select the level premium duration, or term, of your policy — usually 10, 15, 20 or 30 years.
You select the death benefit amount.
The premiums you pay generally stay the same throughout the term.
Your beneficiaries receive a payout (if premiums are paid as agreed), also known as a death benefit, from the policy only if you die during the term of the policy.
Once the level premium term period is up, you can continue with an annual renewable premium that will likely increase over time, or you can purchase a new one if your current age and health allow for a new policy. Some term policies allow you to convert some or all your coverage into a permanent policy within a specified period without additional medical underwriting.

What is permanent life insurance?

Permanent (or cash value) life insurance often requires higher initial premium levels than term life insurance, but it provides coverage until death and access to flexible features and benefits. With this type of policy:

Your coverage doesn’t expire if your premiums and the policy cash value growth are adequate to maintain the policy.
Your policy can grow cash value, tax deferred, in addition to offering a death benefit.
You can borrow cash from your life insurance policy tax free to meet other financial needs and goals. (Note: There are impacts this can have on the policy.)¹

Learn more: Why life insurance? 6 ways it can help protect and achieve your financial goals

Advice spotlight

Consider securing a life insurance policy when you’re younger to potentially reap more benefits. Regardless of whether you choose permanent or term insurance, you are more likely to secure a lower monthly premium if you purchase a policy in your younger years. Additionally, obtaining a permanent life insurance policy at a young age gives your cash value more time to grow.

What are the pros and cons of term vs. permanent life insurance?

Term life insurance

Pros	Cons
You can choose the duration or specific term of coverage.	Once your policy expires, so does the death benefit.
Typically offers lower monthly premiums than permanent.	No cash value.
If your policy includes a convertibility clause, you can convert your term policy to a permanent policy within a specified time period without additional medical underwriting.	Once the policy expires, if you want to renew coverage you will need to do one of the following: Convert to an individual permanent policy without medical underwriting.* Continue to pay annual renewable premium rates, which increase each year, up to age 95. Undergo underwriting for a new term policy which will likely have higher premiums.

*Subject to the provisions of the policy language. Typically, exercising a conversion should be initiated prior to the policy expiring.

Permanent life insurance

Pros	Cons
Lifetime financial protection.	Initial premiums can be more expensive than term.
Your policy has the potential to grow cash value, which accrues interest on a tax-deferred basis over time.	Policy can take 10+ years to build enough cash value to borrow from.
You can take withdrawals up to the amount of the premiums you paid into the policy and/or borrow from your cash value, income tax free, if you need it.	Accessing policy cash value through loans and surrenders may cause a permanent reduction in policy cash values and death benefit and negate any guarantees against lapse.¹

What are the types of permanent life insurance?

Whole life policies are the most straightforward kind of permanent life insurance, offering fixed premiums and the ability of your policy's cash value to increase at a guaranteed rate that will not fluctuate with market changes. You can withdraw money or borrow against the cash value during your lifetime, though the insurer will reduce the death benefit by the same amount if you don’t pay the money back.
Universal life policies typically offer more flexibility by allowing you to adjust your premiums and death benefits with a cash value that earns interest based on the current market or the policy’s minimum interest rate.
Variable life policies have a guaranteed component like whole life, but in addition, allow you to put the cash value of your policy into investments you choose and earn tax-deferred returns based on their performance. Since the value of the investments can go down, variable life policies are riskier than whole or universal policies. However, variable policies provide minimum rate guarantees for the whole life portion of the policy so that the cash value has limited downside exposure to the market.
Variable universal life insurance policies combine features of universal and variable policies, allowing you to adjust your premiums and death benefit while putting the cash value in investments. Because the returns on your investments are not guaranteed, these policies involve more risk than whole or universal policies and may require additional premium amounts or a reduction of policy benefit if the value of your investments go down.

Advice spotlight

You can avoid selling investments during a down market by tapping into whole life insurance for income instead. Unlike other forms of permanent life insurance, a whole life policy is not dependent on market investment returns or a market interest rate. Withdrawing cash from your whole life insurance’s cash value¹ is an alternative to consider if you normally rely on investments for income. There can be an impact to your policy and death benefit, so make sure you understand all the tradeoffs and risks before you employ this strategy.

How do I decide which is right for me?

When you’re considering term or permanent life insurance, ask yourself the following questions:

Would your spouse or partner lose a significant amount of income or support if you passed away?
How much of a financial burden would your family face if you died unexpectedly?
If you have children, how old are they? How long do you want them to be covered by the protection of a death benefit should you pass away?
Will you have lifelong dependents (e.g., a child with disabilities who will need extra care)?
Do you have any debt, like a mortgage, car loan or credit card debt?
How might your family’s needs change over time?
Do you want to leave a legacy to family or charity?
Are you or will you be concerned about estate taxes?

Find the right coverage for your family

Before purchasing a life insurance policy, connect with us for guidance on choosing coverage and to better understand how term or permanent life insurance may align with your overall financial goals.

Questions to discuss with us

Is term or permanent life insurance a better fit for my unique financial situation?
Should I buy term life insurance and invest the difference?
In what scenarios could I use the cash value from a permanent life insurance policy?