The Differences Between Term and Permanent Life Insurance

Many investors overlook life insurance when assembling a financial portfolio. But life insurance is an essential product that can give you protection plus the opportunity to build wealth you can access today — and pass on to your family.

The key is determining which type of life insurance – term or permanent life insurance – is right for your needs and may help you achieve financial security.

Term Life

Term life insurance is similar to renting a home. It provides temporary protection for a fixed term, or specific number of years. It provides a death benefit that typically is transferred to beneficiaries federally income-tax free, unlike many other types of inherited assets. In some cases, term life also can be converted to a permanent life insurance policy (you’ll want to check with your financial professional on any limitations).

Term life policies typically are less expensive than permanent life insurance. You can determine how much coverage to purchase by calculating potential lost income as well as the expenses you want to ensure would be taken care of if anything should happen to you during the policy term. One thing to consider is that term policies don’t build cash value that you can use during your lifetime.

Permanent Life

Permanent life insurance is more like buying a home. It provides coverage for life, rather than a specific amount of time. The premiums you pay into the policy also have the potential for tax-deferred growth, building cash value that can be tapped* for emergencies or planned expenses like school tuition.

There are several types of permanent policies that provide different benefits, like offering a fixed rate of growth or increasing their cash value based on the annual returns of the stock market. The right policy and amount of coverage depends on your needs — such as the amount of income you’d want to provide a surviving spouse, expenses to cover, charitable giving, or wealth transfer goals.

Life insurance is an essential tool for achieving financial security, with many types offering a mix of protection and living benefits. Talk to your financial professional about the type of life insurance policy that will meet your needs.