Expert Opinion & Commentary Should you get permanent or term life insurance? Expert advice on choosing the best policy Written by Karen Terry | Reviewed by Nupur Gambhir Nupur Gambhir Nupur Gambhir is a content editor and licensed life, health, and disability insurance expert. She has extensive experience bringing brands to life and has built award-nominated campaigns for travel and tech. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service. | Posted on: August 13, 2024 Why you can trust Insure.com Quality Verified At Insure.com, we are committed to providing the timely, accurate and expert information consumers need to make smart insurance decisions. All our content is written and reviewed by industry professionals and insurance experts. Our team carefully vets our rate data to ensure we only provide reliable and up-to-date insurance pricing. We follow the highest editorial standards. Our content is based solely on objective research and data gathering. We maintain strict editorial independence to ensure unbiased coverage of the insurance industry. Life insurance is an important part of any financial plan, and yet many people don’t currently own a policy. As of this year, 70% of Americans say they need life insurance, yet only 51% own it. Insurance can be complicated, and our research shows that 25% of people who don’t own life insurance say they haven’t bought it because they don’t know what type to buy or how much coverage they need. If you’re looking into purchasing life insurance, here’s some information to help you understand the types of life insurance that are available and overcome the knowledge barrier. How term life insurance works Term insurance is exactly as it sounds — it provides coverage for a specific period of time — or term. Companies have different options for term lengths, the most common being 10-, 20-, or 30-years. Some companies let you choose a different term length. While some life insurance products build up a cash fund, term life is pure insurance. Term life insurance is one of the most commonly purchased products, accounting for four in 10 life insurance policies sold each year. It’s popular for a few reasons. First, it’s an affordable option if you are looking for a higher face amount or are budget-conscious. In fact, the average annual premium for term insurance ran at about $1,000 in 2023 — and the cost could be lower depending on your age and how much coverage you purchase. Term life is also a great option if you know that you will only need insurance for a limited period of time — say to pay for a mortgage or replace the part of your income that you put towards college savings while your kids are young. Despite term life being affordable, according to the 2024 Insurance Barometer Study by LIMRA and Life Happens, about three-quarters — 72% — of Americans overestimate the true cost of a basic term life insurance policy. When asked how people come up with their life insurance cost estimate, the research shows more than half — 54% — said it was based on “gut instinct” or a “wild guess.” How permanent life insurance works Permanent insurance is true to its name, providing lifelong coverage and benefits. Many of these products also have a savings component, called the cash value. Part of the premium you pay covers the death benefit, while the remainder of the premium goes to fund the cash value. Whole life insurance — which is the most popular type of permanent life insurance — also comes with the added benefit of a yearly dividend payout. That cash value account can be used for many purposes. For example, you can take out a loan against it to pay for financial needs like tuition payments or other costs. When you take out a loan, just like with a bank, the insurance company charges interest, and you pay yourself back the “principal” or loan balance over time. Some policies also allow you to use the cash value to pay some or all of your premium if the account value is high enough. This usually takes decades to achieve. Keep in mind with these features that you still need to pay enough toward your premium to cover the cost of insurance, and it is important to pay the loan back because you can lose your insurance coverage if the cash value drops too low. Converting term insurance to permanent insurance The good news is that if you buy term insurance and later decide you need something more permanent, many term policies can be converted to permanent insurance without completing another application. Companies might limit how long you can wait before converting. And while some will let you convert to any of their products, others limit conversions to a smaller list of options. It’s always a good idea to consult with the insurance company or a financial advisor to find out what your options are. Choosing the right life insurance policy can feel overwhelming, but understanding the differences between term and permanent insurance can help you make an informed decision. Remember, the best policy is the one that fits your needs and protects your loved ones. × Get Free Life Insurance Quotes Today! Zip Code Please enter valid zip Age Age 16 – 20 21 – 24 25 – 34 35 – 44 45 – 54 55 – 64 65+ Coverage Amount Coverage Amount $50,000 – $100,000 $100,000 – $200,000 $200,000 – $300,000 $400,000 – $500,000 $500,000 – $1,000,000 $1,000,000 – $2,000,000 $2,000,000 – $5,000,000 $5,000,000+ Coverage Type Coverage Type Whole Life Term Life Final Expense Not Sure Gender Gender Male Female Non-Binary Tobacco Use Yes No Compare Quotes Karen Terry . .Karen Terry leads the Individual Product Research team, developing and implementing LIMRA's research program for individual life, disability, long-term care and critical illness insurance products in the U.S. and Canada. Disclaimer: The opinions expressed by outside experts in Insure.com’s “Expert Opinion & Commentary” section reflect those of the author and do not necessarily reflect the views of Insure.com, its parent company QuinStreet Inc. or any of its affiliates and employees. Our editors review these articles and monitor them for accuracy after they've been posted, but the insurance industry sees constant rate changes, regulatory shifts, and other changes. Readers should always check an insurance company's website or contact.