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Term and Permanent Life Insurance

There are two basic kinds of life insurance: "term insurance" and "permanent insurance." Here's how they work.

Term Insurance vs. Permanent Insurance
Term Insurance
Permanent Insurance
Main Purpose: To protect your family in case you die. To protect your family in case you die and save money.
Cost: Low when you're in your 20's to 40's; higher as you get older. More expensive than term insurance.But as you get older, can become less expensive.
How long it lasts: A set term; usually 10 to 30 years. As long as you want
Accumulates cash value: No Yes (If you cancel your policy before you die, you will get back any money made from investments from your policy.)
Who should consider buying it:

People who need insurance but don't' have much money

Families that need insurance only for a specific amount of time (for example, until the kids finish school)

Older people

Families looking for a conservative way to save money

Main Advantages:

Much less expensive, so you can buy more insurance for the same amount of money.

Particularly useful to make sure your family is protected for a specific time of your life: like until your kids finish school or until you have paid off the mortgage on your home.

Because there is no set term the price of your insurance always stays the same. You won't have to pay higher rates when you're older.

Once you get the policy for two years, it can never be cancelled or non-renewed as long as you continue to pay the premiums.

Your policy grows in "cash value" as you get older. You can take advantage of this cash value through low-cost loans and by using it to pay your premium.

If you decide to cancel your policy, you will get some money back. And if you wait long enough, you will actually get back more than you put in.

Main Disadvantages:

You only get money back if you die.

It will cost more to renew because you're older than when you originally purchased the policy.

If you want to renew and your health is bad, you may fail the medical exam and not be able to buy more insurance.

More expensive, so you may not be able to afford all the insurance you need.

Permanent insurance builds cash value because the insurance company is basically investing your money for you. But insurance companies are conservative, so you might do better by investing the money yourself.

Read more about the difference between term and permanent insurance.

How much life insurance do you need and how much does it cost? 

Which insurance is right for you?

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