Difference between Term Life Insurance and Permanent Life Insurance

When you are planning to buy life insurance, you need to take a decision whether you want term life insurance or permanent life insurance. It is difficult to tell which the better of the two is. It all comes down to your requirements and your finances. If you are looking for a cheap option, then term life insurance is the best option for you. But if you are looking for insurance with cash value built into it, then you are better of with permanent life insurance. Term life insurance offer death benefits only. If you outlive the policy, you get no money back. Permanent life insurance offers death benefits and has a cash value component. You can withdraw money from this cash component by cashing in the policy or by borrowing against it. Term life insurance is bare-bones insurance coverage. You pay a premium and if you die while the policy is still outstanding, the insurer pays a death benefit to policy’s beneficiary. You can renew the policy for another term when the policy ends. Most term policies, however, are renewable only to a certain age, generally 75 and after that the policy ends. In permanent life insurance, you pay a premium that much larger than the premium for term often five to 10 times the size but a portion of that premium goes into the cash value of the policy. In the beginning, a major portion of the premium goes in to paying for the insurance while a smaller portion goes in to the cash value. Over time, a major portion of the premium goes towards the cash value. The cash value can grow, depending on the dividends or interest the insurance company pays.

• Some of the basic features of term insurance that differentiate it from permanent life insurance are:
• Provides temporary coverage for a specified period of time generally 5 years to 30 years.
• The death benefit is paid only if the insured dies during the specified term of the policy.
• No cash values accumulate during the policy term.
• Most can be converted to a permanent policy without medical qualification during the conversion period.

The basic features of permanent life insurance are:

• Provides coverage for as long as premiums are paid, or as long as there is sufficient cash value within the policy to pay for itself.
• All permanent life insurance policies have level, guaranteed premiums. Universal life policies have flexible premiums.
• The insured can borrow or withdraw from the policy generally after a specified period.