Life insurance can either be temporary or permanent. Temporary insurance is more commonly called term insurance, and policies are issued for a specific number of years, often from 5 to 30. Permanent insurance covers you for your entire life or up to a certain age, usually 100-years-old.
Term life insurance – Term life insurance offers protection for a set period of time. The term can be for one year, or anywhere from five to 30 years or longer. Term life policies pay a lump sum to your beneficiaries if you die during the policy’s term. The policy ends at the end of the term, unless you pay to extend it. Premiums stay the same for the entire term.
Permanent life insurance – Permanent life insurance lets you build savings over time. You can withdraw from, invest, or borrow against this savings. You can also use it to pay premiums .A portion of each of your premiums is put into an account, known as the cash value which grows at either a fixed or variable interest rate. Premiums for permanent life insurance are higher than for term life because of the savings feature and because you’re buying coverage for a longer period.
The two most common types of permanent life insurance are whole-life insurance and universal life insurance. Whole-life insurance stays in effect for your entire life unless you cash the policy in or stop paying premiums. Universal life insurance stays in effect until the maturity date, which is usually age 100, as long as you have $1 or more in cash value. At the maturity date, coverage ends and you get the cash value.