When choosing life insurance options, it can be confusing to figure out the differences between term, permanent, and other types of insurance in between. The two major types of insurance are Permanent (whole life) and Term (set for a specific amount of time). There are some very significant differences between term and permanent life insurance, differences that can be deciding factors when choosing the right life insurance for specific individuals. For these reasons, it is important to understand the pros and cons of permanent life insurance and know how it compares to other options.

So what is permanent insurance? Although there can be slight variations, depending on the policy chosen, permanent life insurance is designed to last for the entire lifetime of a person and leaves money to any heirs or listed beneficiaries. It also builds cash value, a feature that is seen as a great benefit by particular buyers of the product. This is a very general definition of permanent life insurance and comparisons between the different types of permanent life insurance can be useful when purchasing a policy. Permanent life insurance includes whole, variable and universal types of insurance, each with distinct and beneficial features.

In addition to considering the various types of permanent life insurance, many consumers also wonder how term insurance differs from permanent life insurance. This is a vital consideration because these buyers often think of term and permanent life insurance as being the same. They are not. Term insurance only pays a death benefit if the owner of the policy dies within a set period of time, anywhere from one to twenty years after purchasing the policy (sometimes policies last for longer periods of time or can be renewed, usually with significantly higher premiums).

Once the term insurance policy period ends, the insurance is no longer in existence. There is no money left to pay to heirs, beneficiaries, etc. It is as simple as that. But permanent life insurance not only lasts for the owner’s lifetime but can be worth money (sometimes known as cash value) to be used before or after the person dies. A loan can be taken out by the buyer before death or beneficiaries can receive the cash value after the death of the value. Permanent life insurance also has a separate feature where savings build up, usually with interest. This is a significant difference between term and permanent life insurance.

Each type of permanent life insurance – whole, variable and universal – have different advantages and disadvantages. Like all permanent types of life insurance, whole life has coverage for the life of the owner. Premiums may remain fixed and do not change during the lifetime of the person. Also, there can be a guaranteed cash value, with all the risks taken by the insurance company to pay that guaranteed value. The savings feature is attractive to buyers.

Variable life insurance has many of the features of whole life but the buyer gets to take on more risk when it comes to choosing investments. For those who like to have control of investments, this may be a fine feature but it is not as safe or guaranteed as whole life insurance. Also, buyers may be limited to investments offered by the insurance company.

Another type of permanent life insurance is universal insurance. Investments are kept strictly apart from death benefits and buyers can tweak universal life insurance to suit their budgets. They can change benefits and premiums. As a general rule, this form of permanent insurance builds cash value quicker than the other two forms, variable and whole life.

No matter which type of permanent insurance is selected, consumers need to understand that cash value builds as well as a death benefit, offering two types of financial gains. Also, loans may be taken from most types of permanent life insurance. However, a major drawback is that premiums paid in the first 10-12 years usually go toward paying off an agent’s fees or commission. It takes awhile to truly start building a respectable cash savings. For those who are older or may not expect to live for a long while after the initial 12 year period of time when cash value truly starts to build, permanent life insurance may not be the best choice.

When choosing permanent life insurance, always look closely at the fees charged and never forget that premiums are apt to be relatively high when compared to other types of life insurance. If there is any doubt that dependents will be able to live on their own at some point in life, permanent life insurance can provide some peace of mind, with the cash feature left behind to help provide financial security to beneficiaries.