Term vs Permanent
How to Find the Right Life Insurance for You
Written by
Evan Romo
Tuesday, February 21, 2023

Life Insurance may seem like it’s confusing, but with a clear breakdown, you realize it’s not so complicated! A Life Policy can be summarized into two types: Term and Permanent. Of course, each has their pros and cons that we will get into, but that is where life insurance derives it’s coverage from. Let’s learn a little bit more about a term policy versus a permanent one.

Term Life

Term Life Insurance gets it’s name from the term length that a policy can last for. The common term lengths a policy can last for are 10, 20, and 30 years. During this term length, if the policyholder were to die, the beneficiaries, usually children or a spouse, receive a lump sum of money, called a death benefit. In summary, that’s a term policy. These policies are the simplest form of life insurance you can get, and as a result, are the inexpensive option for when you decide to begin shopping.

A Term Life policy is suitable for anyone wanting to be covered during a certain length of time. More importantly, a length of time where you will be carrying heavy financial obligations. One example of a great time to get a term policy is once you have purchased a home. There will be about a 20-30 year committment you will be making, and if something were to happen to you, you would not want to leave your spouse with that financial burden. Another example would be when you have children. A 20-year policy would cover you in the event that you pass away while your children are still heavily dependant on you.

Although term life is simple and affordable, it does not pay out any death benefits if you live out the term. However, that is not the primary purpose of a term policy. Term Life is the more accessible option, and allows you to have a solid insurance policy without many additional considerations. But some of those considerations allow you to earn wealth throughout a policy, and this is where we talk about Permanent Life Insurance.

Permanent Life

Ther other side of life insurance are Permanent coverages. These types of coverages are… well, permanent. Rather than terminating, the policy is good throughout your entire life and is fairly adjustable to fit your needs at the time in case money were to run tight at points. Along with the death benefit that you receive with your insurance, you also receive a “cash account” that earns interest throughout time. Depending on the type of policy you choose, you will earn different levels of said interest. The “cash account” gives your life insurance policy an opportunity to become a wealth generation tool, and that is the biggest difference between permanent and term life.

For those who are naturally interested in investing their money, a permanent life insurance plan may be worth looking into! One example of a permanent policy is Universal Life which bases your cash account’s gains off of the market index. Then there’s an IUL, or Index Universal Life, which bases it off of a stock index, such as the S&P500. These indexes determine the growth of your cash account. There is a level of risk to this, but a permanent policy is a sure fire way to make the most out of your life insurance.

Aside from a cash account, your permanent policy assures you a death benefit no matter when you pass on. These differences make permanent life insurance a more complex coverage, and with that, they are naturally a more expensive policy. Although these plans are still flexible, they do not provide the accessibility that a term life may bring to you. However, knowing these differences will ensure that you are now able to obtain life insurance much more confidently. As you may know, we’ll do the shopping for you. Check out this page to get in contact with one of our Life and Health specialists.

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