What’s the Difference Between Term Insurance and Permanent Insurance?

All life insurance is designed to provide the policyholder with a specified death benefit ($) if they pass away while the policy is in effect. There are two types of life insurance: TERM and PERM.

TERM covers the policyholder for a specified period of time usually for 10, 15, 20 or 30 years at a set monthly price. Once the policy hits the end of the term, the policy ends and the policyholder can no longer remain insured at that same monthly price. Term insurance is usually very cost effective for younger people looking to protect their family or business during the time they are at greatest risk: when the family or business is heavily reliant on their presence or income. Typically, parents will get a term policy covering them for 20-30 years while the children are young, and they are wage earners reliant on each other. These policies are inexpensive because in all likelihood the policyholder will outlive the policy, and no claim will ever get paid out.

PERM covers the policyholder for the rest of their life. The best perm policies guarantee that the rate will never increase and that the insurer can never cancel the policy. Unlike term policies, the policy is guaranteed to pay out its death benefit. This makes perm policy a certainty for policyholders. But it also makes these policies cost more than their term counterparts because the policy will absolutely payout. PERM policies are also called WHOLE LIFE policies meaning they cover you for your whole life.

People typically choose a PERM policy when they are relatively older. They choose PERM, first, because (at the very least) they want their funeral costs will be covered, and a PERM policy guarantees that will happen.They also choose PERM because as you get older TERM policies become unavailable to older people, and even when they are available they become almost as costly as permanent coverage without the certainty of PERM coverage. The best PERM policies can also be used to accumulate cash value which can be used if all or part of the policy is no longer needed. This can happen where the policy is purchased to protect a spouse and the spouse pre-deceases the insured. Small PERM policies to guarantee payment of funeral costs are called FINAL EXPENSE plans. Many people want more coverage than just for funeral costs. They want to ensure that a spouse can afford expenses after their death, or protect an adult child who is the dependent on them, or to pay off debts like mortgages, or to leave a legacy gist to a grandchild or special charity. These are also PERM policies and work just like the FINAL EXPENSE plans, they are just larger coverage amounts- giving you PERManent peace of mind.