| Term life insurance policy | Permanent life insurance policy | |
|---|---|---|
| Length of coverage |
Typically covers a fixed period: 10, 20, or 30 years, depending on your policy. Often, the coverage can be renewed up to a certain age.
|
Covers you for your entire life, as long as premiums are paid. |
| Cost | Typically has lower premiums, especially if you're young and healthy. | Typically has higher premiums due to lifelong coverage and cash value accumulation. |
| How it works |
Pays a benefit only if you die before your policy expires. If you outlive your policy, the policy expires and there's no payout. In most cases, there's also no refund of premiums. Some term life policies can be converted to permanent life. |
Pays a benefit when you die, no matter how long you live. With a cash value feature, a portion of your premium is set aside and invested. You may be able to withdraw or borrow against the cash value. But each policy has different rules for this. |
| Application process |
May require an interview and/or medical exam. The application is reviewed by an underwriter to determine eligibility and premium costs. |
Typically requires an interview and/or medical exam. The application is reviewed by an underwriter to determine eligibility and premium costs. |
| Cash value | Does not include a cash component. | Builds cash value over time, which grows tax-deferred and can be accessed. |
| Tax advantages | Death benefit is generally income tax-free. | Death benefit is generally income tax-free; cash value grows tax-deferred. |
| Best suited for | Those who need affordable coverage for a specific period, looking specifically for income replacement. | Those who want lifelong protection, plan to support depends long term, or want to include insurance in their financial strategy. |
Details
Source: Schwab Center for Financial Research
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