Permanent Life Insurance Versus Term Life Insurance

November 15, 2022 |read icon 6 min read
A married couple meets with their financial professional to learn about the differences in permanent life insurance versus term life insurance.

Life insurance creates financial protection for your family. If you were to die prematurely, you want to make sure your family is taken care of. That’s the primary purpose of life insurance. Over half of US households would feel the financial impact from the loss of their primary wage earner in one year or less. Over 40 percent would feel the impact within six months.1 Life insurance protects your loved ones if you’re not able to provide for them.

There are different types of life insurance to consider: permanent and term. But how do you choose the coverage that’s best for you? In this article you’ll learn about the differences in permanent life insurance versus term life insurance.

What is term life insurance?

Term insurance protects your loved ones only for the number of years you choose. Typically, a term is 10 to 30 years. You pay premiums during the term of your policy, and if you die during the term your beneficiaries receive the death benefit payment outlined in your policy. When the term ends, your life insurance protection ends, and you no longer pay premiums to the insurance company.

Understanding what term insurance is will help you know if this kind of coverage is right for you and your family. It’s the most affordable type of life insurance because it doesn’t last forever. Term insurance makes sense when your need for coverage will disappear at some point, such as when your children graduate from college or when a debt is paid off.

Learn more about term insurance from Ameritas or get an instant quote to see how affordable term can be for you.

What is permanent life insurance?

Permanent life insurance is designed to protect for a lifetime. Like its name, it’s permanent. Your coverage doesn’t end like a term policy.

How else is permanent life insurance different from term life insurance? It can build cash value, which helps make it a flexible financial planning tool. The cash value can be used for a variety of needs, such as paying for college tuition or supplementing retirement income.

Permanent life insurance may best suit your needs if you’re looking at long-term financial goals. A permanent life policy can build guaranteed, tax-deferred cash value over time to help you be ready for life’s challenges and opportunities. For instance, think about enjoying a long and healthy life and living well into retirement. Permanent life insurance may be able to provide money to help cover your living expenses.

Unlike some financial products that limit when you can access your money or try to tell you how you can spend it, permanent life insurance gives you more flexibility. It provides multiple ways to access funds within your policy when you want and for what you want.

You can access your policy cash value for any reason. For example:

  • Supplementing retirement income.
  • Starting a business.
  • Paying for college or a wedding.
  • Covering emergency or business expenses.
  • Purchasing a vacation home or taking a vacation.
  • Making home improvements.

Learn more about the different types of permanent life insurance.

Types of permanent insurance

Whole life insurance features guaranteed premiums, death benefits and cash value.* The cash value may accumulate tax-deferred over time. Whole life insurance policies also give you the potential to receive dividends. This can increase the cash value of the policy while you’re living or provide an increased death benefit for your beneficiaries.

Unlike whole life, universal life insurance policies are flexible and may allow you to raise or lower your premium or coverage amounts throughout your lifetime. Like whole life insurance, universal life also has a tax-deferred savings component, which may build wealth over time.

Indexed universal life also provides death benefit protection, but it has the potential to accumulate cash value based on positive changes in an external market index, such as the S&P 500. Most policies have a built-in floor, which ensures that the cash value will not decrease due to market volatility. However, it’s important to note that the cash value is not directly invested in the market.

Variable universal life combines life insurance protection and an investment opportunity in one product. With the ability to invest in professionally managed investment options, you can potentially accumulate cash value while providing your family with death benefit protection.

Learn more about Ameritas offerings for permanent life insurance.

The cost of waiting

Obtaining any kind of life insurance at a younger age makes it more affordable. The longer you wait, the more you’ll spend. Buying life insurance at a young age helps ensure that if something happens to your health in the future, your rates will always be based on your health at the time the policy was purchased. Additionally, the sooner you buy permanent life insurance, the sooner you start building cash value, which can be used for opportunities or emergencies.

Have more questions about term life insurance versus permanent life insurance? Contact a financial professional to learn more.

1LIMRA 2020 LIAM Fact Sheet

*Guarantees are based on the claims-paying ability of the issuing company. Policies, index strategies and riders may vary and may not be available in all states.

Loans and withdrawals will reduce the policy’s death benefit and available cash value. Excessive loans or withdrawals may cause the policy to lapse. Unpaid loans are treated as a distribution for tax purposes and may result in taxable income.

Variable products are underwritten by Ameritas Investment Company, LLC. Policies, index strategies and riders may vary and may not be available in all states. Optional riders may have limitations, restrictions, and additional charges.

Variable products are subject to investment risk, including possible loss of principal. Before investing, carefully consider the investment objectives, risks, charges, expenses and other important information about the policy and underlying investment options. This information can be found in the policy and investment options prospectuses. You can obtain copies from our website by calling 800-745-1112. Read the prospectuses carefully before investing.

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