Types of Life Insurance: Term vs. Permanent

by COUNTRY Financial

If somebody asked you about the difference between term and permanent life insurance, could you tell them? It’s okay if not—most people probably couldn’t.

There are multiple types of life insurance, and they all serve a unique purpose. They vary in coverage length, premium costs, cash value and more.

To understand the difference between term and permanent life insurance, think about the idea of renting or owning a home:

• Term life insurance is like renting: you’re covered for a set time and can renew when your term ends.
• Permanent life insurance is like owning a home: as long as you pay your premiums, it’s yours, and it can build cash value (similar to home equity).

Under the permanent life insurance umbrella, two common options are whole life and indexed universal life (IUL).

Let’s dive deeper into how each works.

Term life insurance

Term life insurance is usually the least expensive option and pays a death benefit only if you pass away within the term. Here's how it works:

• You’re covered for a specific period—usually 10, 20 or 30 years
• Premiums are generally lower than permanent or whole life insurance
• Your premium stays the same for that chosen term, though longer terms typically cost more

Permanent life insurance

Permanent life insurance provides lifetime coverage and builds cash value over time. There are two types of permanent life insurance: whole life insurance and indexed universal life insurance.

Whole life insurance

Whole life insurance is as its name implies--it protects you for your whole life.

• Lifelong coverage as long as you pay your premiums
• Cash value accumulation, which you can borrow against or withdraw
  • Note: Cash value does not automatically pass to your beneficiaries unless the policy is structured to include it
• Generally guaranteed premiums, though this varies by permanent policy type

Indexed universal life insurance

Indexed universal life is another type of permanent life insurance that offers more flexibility. It provides:

• Lifelong protection as long as you pay sufficient premiums
• Potential for higher cash value growth, tied to the performance of a market index (like the S&P 500), while offering downside protection
• Flexible premiums and adjustable death benefits, giving you more control over how the policy fits your financial situation

Final thoughts

All the types of life insurance can be confusing, and it's hard to know what's best for your family.

If you're considering life insurance and have questions, talk to your insurance agent today. They'll listen to your situation, evaluate your needs, and help you decide what's best for you and your family.