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Term Life Insurance vs. Permanent: Which one is right for you?


 The answer is – both are the right type, depending on YOU and your specific needs.

 Term life insurance is inexpensive initially, and cheaper than permanent life insurance. And by initially, that could mean time frames as long as 20 or 30 years. After that point the insurance becomes so expensive that it becomes unaffordable. 

Therefore, if you need life insurance for a time frame of 10 to 30 years, then a term life insurance policy will be the right fit for you.

By contrast, permanent life insurance (whole life and universal life insurance in Canada) is more expensive initially, but premiums are generally locked in level for life. So eventually – when term life insurance premiums increase at the end of the term (often after 20 or 30 years), permanent life insurance will be better because it remains affordable. The premiums you pay now (that are more expensive than term right now) should remain level for life – so in the long term permanent life insurance will be less expensive.

For typical family needs such as income protection and mortgage insurance, term life insurance is the appropriate type of life insurance. If you’re looking to cover final expenses and burial costs and thus need life insurance for your entire life, then permanent insurance will be the better type of life insurance.

That being said, you can layer policies, i.e. purchase a policy that has some of both types. For example you could purchase $450,000 of term life insurance for 20 years, PLUS $50,000 of permanent life insurance. That would give you $500,000 total of life insurance for 20 years (from both policies) which then reduces down to $50,000 for the rest of your life. Here’s a table that should help illustrate this:

Age  Year  Premium Coverage Total Premium  Total Coverage
Term  Perm.  Term  Perm 
40  1  50  80  450,000  50,000  130  500,000
55  15  50  80  450,000  50,000  130  500,000
60  20  50  80  450,000  50,000  130  500,000
At this point the term life insurance is cancelled but the permanent life insurance continues on.
61  21  0  80  0  50,000  80  50,000
62  22  0  80  0  50,000  80  50,000
63  23  0  80  0  50,000  80  50,000