Term vs. Permanent Life Insurance: Which One Is Right for You?
Term life insurance provides coverage for a set period at a lower cost, while permanent life insurance lasts your entire life and builds cash value. The right choice depends on whether you’re covering a temporary need — like income replacement while raising kids — or a long-term goal, like estate planning.
Why Life Insurance Coverage Matters
Many people carry less life insurance than they may actually need. According to LIMRA, average coverage equals $163,000 — roughly 3.5 years of income replacement, based on the average income of $46,800 reported by the U.S. Bureau of Labor Statistics in 2019. That falls well short of the commonly recommended 7-year threshold.
The gap matters: more than half of consumers surveyed said their households would face immediate or near-immediate financial trouble if the primary wage earner died today.
Understanding the difference between term life insurance and permanent life insurance is one of the most important steps in closing that gap.
What Is Term Life Insurance?
Term life insurance is temporary coverage. It provides a death benefit for a specific period — typically 10, 20, or 30 years.
Key features of term life insurance:
- Provides a death benefit only during the selected term.
- Does not accumulate cash value.
- If the policyholder dies during the term, beneficiaries receive the death benefit.
- Coverage ends when the term ends.
Term Life Insurance Benefits
The limited time frame is what drives the main term life insurance benefit: affordability.
- Term life insurance generally costs less than permanent life insurance, especially for younger buyers.
- Lower premiums can free up funds for other household expenses.
What Is Permanent Life Insurance?
Permanent life insurance stays in place for the policyholder’s entire life, as long as premiums are paid.
Permanent Life Insurance Benefits
- Builds cash value over time — a cash reserve that accumulates within the policy.
- This cash reserve typically earns a modest rate of return.
- Policyholders have limited access to these accumulated funds while the policy is active.
Term vs. Permanent Life Insurance: Which Should You Choose?
The right fit depends on what you’re trying to protect against.
- Term life insurance works well for time-limited needs, such as covering the years before children finish college.
- Permanent life insurance tends to fit long-term financial needs, such as estate planning.
Many people have both short-term and long-term needs. In these cases, it may make sense to combine a basic permanent policy with a supplemental term policy. A review of your specific situation can help determine which approach — or combination — is appropriate.
Factors That Affect Cost and Eligibility
Before choosing between term and permanent life insurance, keep the following in mind:
- Cost and availability depend on age, health, and the type and amount of insurance purchased.
- Life insurance policies carry expenses, including mortality and other charges.
- Surrendering a policy prematurely may result in surrender charges and income tax implications.
- Consider determining whether you’re insurable before implementing any life insurance strategy.
- Any guarantees tied to a policy depend on the issuing insurance company’s ability to continue making claim payments.
Term or Permanent: What Are People Actually Choosing?
In 2018, more permanent life insurance policies were purchased than term policies. However, term policies still made up approximately 70% of all life insurance policies issued that year, according to the American Council of Life Insurers.
Choosing Between Term and Permanent Life Insurance in Florida
Choosing between term and permanent life insurance often comes down to your stage of life, financial obligations, and long-term goals — whether that’s income replacement for a growing Florida family or estate planning considerations for retirees across the state.
Tyler Harrelson, CLTC®, CES®, CFS®, and the team at The Art and Science of Successful Planning (ASOFSP) in Fort Myers, Florida, help individuals and families evaluate term and permanent life insurance options as part of a broader financial plan.
Frequently Asked Questions
What is the main difference between term and permanent life insurance?
Term life insurance provides coverage for a set period and doesn’t build cash value, while permanent life insurance lasts a lifetime and accumulates cash value as long as premiums are paid.
Is term or permanent life insurance cheaper?
Term life insurance is generally less expensive than permanent life insurance, particularly for younger buyers, since coverage is limited to a specific term.
Can I have both term and permanent life insurance?
Yes. Many people combine a basic permanent policy with a supplemental term policy to address both short-term and long-term financial needs.
Which type of life insurance is better for estate planning?
Permanent life insurance is generally more suited to long-term needs like estate planning, since it remains in force for life and builds cash value over time.
