Term Life Insurance Versus Permanent Life Insurance

Life insurance comes in a wide variety of types. But, if you’re just starting out with life insurance,  there are two major categories you should understand: term life and permanent life.


What is term life insurance?

The simplest and most affordable way to ensure your life is through term life insurance. It’s designed to protect your dependents throughout a set time frame — typically 10–30 years. You can leave a “death benefit” to your beneficiaries if you pass away during the term period, which covers expenses and income loss related to your passing.

A term life insurance policy is similar to a subscription. For example, consider the case of a 35-year-old man who buys a $1 million term policy for 15 years. Until they have enough retirement savings, his family would be protected financially. To obtain this protection, he pays a $47 monthly premium.

What happens if this individual passes away during the term? Typically, an insured person’s beneficiary (usually a spouse or child) receives the full amount of the coverage (in this case, $1 million tax-free). But, if he passes away after the 15-year term, a death benefit would not be paid. Therefore, his family would be dependent on the retirement savings collected while he was insured.


What is permanent life insurance?

Permanent insurance is more complex than term insurance. It also comes with different benefits. Typically, purchasing whole life insurance is the simplest and most popular form of life insurance. It lasts for the rest of your life, unlike term life insurance, which only lasts for a certain period of time. 

Upon death, your beneficiary will receive a payout from your policy, and the money you pay into it (your premium) can be deposited into the policy’s cash value, which can increase the death benefit or be drawn on a tax-free basis. The proponents of whole life insurance argue that it goes a long way to protecting your assets. This explains why whole life policies tend to cost up to 20X more than term policies.


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