Term vs. Permanent Life Insurance: What’s the Difference?
Did you know that in 2020, only 54% of people in the U.S. had life insurance in place? This means that a huge percentage of the population in the United States is not covered in case something unexpected happens to them. If you are looking into your life insurance options, we have put together this short guide to share the main difference between term vs permanent life insurance.
Keep reading to learn the ins and outs of term life insurance and permanent life insurance policies.
This is the most common type of life insurance that people choose because it is more budget-friendly. You have a death benefit protection plan in place but with this type of policy, you do not have any cash value accumulation.
This type of policy will expire after a certain number of years (depending on the length of term you choose when you first set up your policy). There are some plans that will allow you to convert to long-term life insurance as needed if you choose a policy that doesn’t cover you for enough years.
We highly recommend speaking to a company such as Paradigm Life to help you choose the best term for your needs because they will take your age and health into account. One of the main cons of this life insurance option is that once your policy ends – that’s it.
It is comparable to renting a home where you have full and immediate use of the house while you are renting but once your lease ends you no longer have a home and you have zero equity value once you are done renting because the house doesn’t belong to you.
Permanent Life Insurance
This type of life insurance is sometimes also known as whole life insurance. A permanent insurance policy not only gives you a death benefit but also accumulates a cash value. The death benefit is the amount of money that is paid out to your listed beneficiaries when you pass away.
The cash value can be compared to a savings account where you can access the money while you are still alive. Keep in mind there are terms in place that say when you can take out money and how much.
As you make your regular policy payments the cash value will accumulate. If you were to cancel your policy then you will receive an accrued amount depending on how long you had your policy.
One main difference is that permanent life insurance will last your entire lifetime vs term life insurance that only lasts for the number of years you choose (10, 20, or 30 years).
Feeling Like a Term vs Permanent Life Insurance Pro?
We hope that now that you learned the main differences between term vs permanent life insurance, you are feeling equipped with the knowledge to make an informed decision.
If our blog post helped you out today, please feel free to keep browsing the rest of this section for more life tips and tricks.