Life insurance helps you protect loved ones financially in case of your untimely passing. You pay premiums, and, in exchange, your insurer will pay your loved ones a death benefit payout if you pass away while your policy is in force.
Two common life insurance plans are term and permanent life policies. Although both offer your beneficiaries a death benefit, each policy differs in several ways. As a result, each can suit different types of policyholders. This article will explain how each policy works and discuss their differences in terms of premiums, coverage length, and wealth-building capabilities.
A term life insurance plan helps provide temporary coverage for a fixed period. Term lengths generally range from 10 to 30 years. If you pass away while the policy is active, the insurer pays your beneficiaries the death benefit. Keep in mind that the policy will expire if you outlive it. You’ll have to renew your policy if you still want coverage.1 Aflac offers term life insurance with various term lengths and death benefits to fit your needs.
Don’t wait until it’s too late. Help cover yourself and your family with affordable coverage from Aflac.
Here are some types of term life insurance to choose from:2
Level term life insurance has a fixed death benefit and premiums for the policy’s duration. This makes level term life insurance the most predictable term life insurance type.
Decreasing term life insurance offers a death benefit that decreases over time. Premiums also decrease over time. As a result, this policy may work well if your financial obligations shrink. For example, you may need less coverage if your children graduate college and begin working full-time.
Renewable term life insurance lets you start a new term life insurance policy at the end of your current term without a medical exam. This helps guarantee term life insurance coverage as you get older and avoid medical exams if you find them inconvenient. However, premiums will increase once you renew the policy.
Convertible term life insurance lets you turn your term life insurance policy into a permanent life insurance policy during or at the end of your plan’s term without a medical exam. Premiums will increase since you’ll be older and converting to a more expensive policy type. However, converting also lets you avoid the medical exam.
Permanent life insurance offers coverage for life if you continue to pay premiums. As a result, these policies are more expensive. Permanent life insurance also accumulates cash value with each premium payment. This cash value grows tax-deferred at a particular rate depending on the policy type. You can then borrow against or withdraw from it when it grows enough. Aflac offers a common type of permanent life insurance, whole life insurance, that can give you lifelong coverage that suits your needs.
Here are some permanent life insurance policies you can choose from:
Whole life insurance offers a fixed death benefit and premiums for your entire life. Furthermore, the cash value grows at a fixed but guaranteed rate based on prevailing interest rates. These features make whole life insurance one of the most predictable permanent life insurance types.
Universal life insurance lets you adjust premiums and death benefits, offering increased flexibility. For example, you can lower your premiums by decreasing your death benefit or secure a larger death benefit by increasing your premiums. The cash value grows based on market rates. Additionally, universal life insurance generally costs less than whole life insurance.3 However, this can vary based on your circumstances and your insurer.
Final expense insurance is a permanent plan designed to cover funeral costs, burial expenses, and other end-of-life items. It has a small death benefit but offers low premiums and cash value. It also doesn’t require a medical exam.
Variable life insurance offers adjustable premiums and death benefits like universal life insurance. You can invest your cash value into individual securities, like stocks, bonds, and mutual funds. This offers you more investment choices, which can lead to faster potential growth. However, there is always a risk of losses. It’s smart to speak with a financial advisor before picking investments within your variable life insurance policy.
Here are some key differences between term and permanent life insurance:
Term life insurance is temporary, meaning it can expire before you pass away. Permanent life insurance lasts for life without changes in premiums as long you follow all terms and conditions and keep up on premiums. Some term life insurance policies may let you renew coverage or convert to a permanent life insurance policy. However, premiums will increase.
Term life insurance tends to charge lower premiums than permanent life insurance. A 20-year, $1 million term life policy costs an average of $480 per year for a healthy 30-year-old male. That same policyholder would pay an average of $2,536 per year for just $250,000 in whole life insurance coverage and $1,254 per year for $250,000 in universal life insurance coverage.4
Permanent life insurance policies come with cash value, allowing you to build wealth over time that you can tap into by borrowing at favorable terms or withdrawing funds. If you surrender the plan, you can get the cash value minus surrender charges. Term life insurance does not come with cash value.
Choosing between term and permanent life insurance depends on several factors:
Term life insurance’s low premiums, limited coverage length, and lack of cash value make it a great option for prospective policyholders who need the most coverage for their dollar and don’t need more ways to build wealth. A permanent life insurance plan, on the other hand, can work well for people who want the peace of mind that lifelong coverage helps provide and seek additional avenues to build wealth. Plus, each policy has several types, making it easier for policyholders to find one that meets their preferences.
Explore your life insurance options.
1 Bankrate – What Happens If You Outlive Your Term Life Insurance? Updated July 21, 2022. https://www.bankrate.com/insurance/life-insurance/outlive-term-life-insurance/. Accessed May 16, 2023.
2 The Balance – What Are the Different Types of Term Life Insurance? Updated March 26, 2022. https://www.thebalancemoney.com/what-are-the-different-types-of-term-life-insurance-5183967. Accessed May 16, 2023.
3 Forbes – Whole Life vs. Universal Life Insurance. Updated April 19, 2023. https://www.forbes.com/advisor/life-insurance/whole-life-vs-universal-life-insurance/. Accessed May 16, 2023.
4 Forbes – Term vs. Permanent Life Insurance: What’s the Difference? Updated March 8, 2023. https://www.forbes.com/advisor/life-insurance/term-vs-permanent-life-insurance/. Accessed May 16, 2023.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Life (A68000 Series) - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term and Whole Life (B60000 Series) - In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life (Q60000 Series) - In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX. Group Term Life (Q60000 Series) - In Delaware, Policies Q60200M. In Arkansas, Idaho, Oklahoma, Oregon & Texas, Policies ICC18Q60200M, ICC18Q60300C, ICC18Q60400C.
Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
Tier One Coverage
Life (Final Expense Life) - In Arkansas, Delaware, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22.
Tier One coverage is underwritten by Tier One Insurance Company.
Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions.
Aflac’s family of insurers include Aflac, Aflac New York, Continental American Insurance Company, and Tier One Insurance Company.
Aflac WWHQ | Tier One Insurance Company | 1932 Wynnton Road | Columbus, GA 31999.
Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211