Life Insurance Blog

What is the difference between permanent and term life insurance?


Life insurance comes in two main flavours, permanent and term life insurance.  It is important to know the difference when buying a life insurance policy.

The difference is one of timing.  Permanent life insurance lasts throughout a person’s life and is much an investment as an insurance product, whereas term life insurance is a more standard form of insurance which covers a person over a certain set period of time, or a term.

Permanent life insurance comes with guaranteed death benefits which pay out regardless of what happens to the health of the insured person after the insurance policy has been applied for. Permanent life insurance also has a life time cash value, which is a lump sum.  This lump sum accumulates as a portion of the premiums, and this can be drawn at any during the policy.  The lump sum that is drawn down detracts from the final pay out.

In many ways permanent life insurance is seen as an investment policy as the premiums have to keep on being paid for as long as the insurance is in force.  If the premiums stop being paid then the policy ends and there stops being a pay out at death.

A more conventional life insurance policy is term life insurance.  Term life insurance pays out when there is a death, but it is not a continuous policy and so is only valid for the period in question.  After this time the insurance becomes invalid and there will be no pay out to beneficiaries.  There is no lifetime cash value.

This means that term life insurance is a more conventional insurance product and it will protect dependents in the case of a death and do little more.  Term life insurance tends to be a good deal cheaper than permanent life insurance, particularly if the applicant is healthy and relatively young.  Many companies have “key man insurance” over some of their employees and this is almost always a form of term insurance.

Although term life insurance can be paid in one premium at the beginning of the policy it is usually a policy that is eligible for premiums.  These premiums are usually more in total if they are paid in instalments than they would be if the premium was paid in one go.

In both term and permanent life insurance the pay-out depends on the premiums paid in, although shopping around among life insurance providers can result in drastic savings for the required pay out.

Stephen Handley
Stephen Handley
My name is Stephen Handley. I have over 20 years experience in IT, Project Management and Financial Services. By combining this experience, I hope to make it easier for Australians to find good quality and affordable life insurance. Furthermore, I am not connected to any life insurance company. So, in the unfortunate event of a claim, you'll have someone in your corner, representing your interests.