Life Insurance

What is the difference between term insurance and permanent insurance?

Term insurance provides coverage for a specific period of time. It pays a benefit only if you die during the term. Some term insurance policies can be renewed when you reach the end of the specific period. Others give you the ability to reenter. The premium rates increase at each renewal date or each reentry. Many policies require that evidence of insurability be furnished at reentry for you to qualify for the lowest available rates.

Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age, when the need is often the greatest. Permanent insurance is designed to be a lifelong policy and is known by a variety of names. As long as you pay the necessary premiums, the death benefit always will be there. These policies are designed and priced for you to keep over a long period of time.

Most permanent policies, including whole life, universal life, adjustable life, and variable life have a feature known as "cash value" or "cash surrender value." This feature, which is not found in most term insurance policies, provides you with some options: You can cancel or "surrender" the policy -- in total or part -- and receive the cash value as a lump sum of money. If you surrender your policies in the early years, there may be little or no cash value. If you stop paying premiums, you can use the cash value to continue your current insurance protection for a specific period of time or to provide a lesser amount of protection to cover you for a longer period. You may borrow the cash value from the policy. If you do not repay the loan with interest, your beneficiaries will receive a reduced death benefit. Keep in mind that, with all types of permanent policies, the cash value of a policy is different from the policy face amount. Cash value is the amount available when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death or at policy maturity.

Whole Life

This is the most common type of permanent insurance. The premiums for a whole life policy must be paid as scheduled in the amount indicated in the policy. These premium amounts remain constant over the life of the policy. The death benefit and cash value are guaranteed as stated in the policy if premiums are paid when due and there are no loans or withdrawals outstanding at the insured's death. Quite often dividends may be credited to this type of policy.

Universal Life

This variation of permanent insurance allows you, after your initial premium payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You can also increase or reduce the amount of the death benefit more easily than under a traditional whole life policy. Typically, current interest rates are credited to the cash value in this type of policy.

*See policy for terms and conditions. The information presented on this page is just a general description. The policy itself should be read for specific coverages and exclusions.