One of the best things about getting my insurance license was learning the difference between the two basic types of insurance, which had eluded me for years. Basically there are two types of life insurance and they break down to temporary and permanent.

An easy way to remember the difference, is ‘term is temporary’—Term life insurance is something you buy for a specific period of time, 10, 20, 30 years for example, and for a specific amount. At the end of that period of time, if you are still around, that’s it; the coverage is gone. One ‘add on’ option is to buy what’s called a return of premium rider, so that at the end of the term, if you are still alive, the entire premium you have paid is returned. This is generally what you buy when you are younger, because financial demands are greater when raising your family, and term is more affordable.

“Permanent” types of life insurance are whole or universal life. Once you buy these policies, they are in force until you pass away or cancel them. People tend these days to lean more toward universal life versus whole life because the premiums are flexible; you aren’t always locked into a specific amount per month. The downside with permanent types of insurance is that these policies are more expensive, because they have to be in place for an unknown length of time. These policies also build a ‘cash value’ which can be used in a number of ways, including supplementing retirement income.

Most term policies can be converted to a permanent policy without proof of insurability, which helps later in life. You can convert your policy for a lower face value, so you can still take care of your loved ones needs without having to qualify for on a health basis. The main reason to have life insurance is to buy your surviving spouse time to grieve and deal with life without facing losing the home. It gives them time to figure out what they are going to do, and not having to make huge financial decisions at a time when they can’t think straight. And that’s what matters.

Term is temporary, universal or whole life insurance is permanent. It depends on your needs. Most people buy term, at least in their younger years, because it’s much less expensive and they can get larger amounts. At then end of the term, 10, 20, 30 years, if you’re still alive, that’s it. It’s gone. That’s why it’s called temporary. Universal is more expensive, but it doesn’t expire; it goes on as long as you pay your premium. It also has a cash value component, where people can accrue money to either; 1) take loans out on the policy in their ‘golden years’ tax free, or 2) increase the death benefit amount without paying a fortune for a higher death benefit, also called a ‘face value.’  For some, it becomes part of their retirement strategy.