Term or Permanent Life Insurance: Which Fits Your Family?
When Priya and her husband bought their first home in Farmingdale, New York, a mortgage broker mentioned life insurance almost in passing, as a box to check before closing. Priya, then age 32, assumed all life insurance was essentially the same product with different price tags attached. It was not until she sat down with an Investment Counselor two years later, after the birth of her second child, that she realized term and permanent life insurance are built with two different problems in mind, and that the “right” choice depends far more on her family’s timeline than on price alone.
Priya’s confusion is common, and understandably so. Both types of policy pay a death benefit to named beneficiaries. Beyond that shared purpose, the two products can diverge in ways that matter a great deal for how a family plans.
How Term Life Insurance Works
Term life insurance provides coverage for a defined period, typically 10, 20, or 30 years. Premiums are generally level for the length of the term, and the policy is often the most affordable way to secure a substantial death benefit. If the policyholder dies during the term, beneficiaries receive the payout. If the term ends and the policyholder is still living, the coverage simply expires, unless it is renewed, usually at a significantly higher premium reflecting the policyholder’s older age.
Term coverage tends to fit naturally against a specific financial obligation with an end date. A 20-year term policy purchased when a mortgage is taken out will often run close to the length of that mortgage. A term policy sized to a family’s income replacement needs while children are young will often expire around the time those children become financially independent.
According to LIMRA’s 2025 individual life insurance sales data, a new premium for term life insurance represented 17% of the total United States life insurance market for the year, reflecting its continued role as a straightforward, budget conscious option, even as overall sales activity across the industry reached a new record.
How Permanent Life Insurance Works
Permanent life insurance, which includes whole life, universal life, and indexed universal life products, covers the policyholder for life, provided premiums are paid, and builds cash value over time. That cash value grows on a tax-deferred basis and, depending on the policy, may be accessed during the policyholder’s lifetime through withdrawals or loans. Withdrawals and loans may reduce the death benefit and cash value and may have tax implications, so it’s important to review the specific terms of a policy carefully beforehand.
Because permanent coverage does not expire after a set term and includes a savings component, premiums are meaningfully higher than a term policy with a similar death benefit in most cases.
Permanent coverage tends to fit families and individuals thinking about lifelong needs, such as estate liquidity, a legacy for heirs, or supplemental savings that can be accessed later in life.
Weighing the Trade-offs
Choosing between term and permanent coverage typically comes down to three questions:
- How long do I need it?
- How much premium can I comfortably fit in my budget?
- Do I have a secondary goal, such as cash value accumulation, beyond the death benefit itself?
A young family with a 25-year mortgage and two children under age 10 might prioritize affordable, substantial term coverage. A business owner planning for estate taxes, or a parent who wants to preserve a legacy regardless of when death occurs, may lean toward permanent coverage despite the higher premium.
“”Many families may use term coverage to protect the years when their financial obligations are highest, and a smaller permanent policy to guarantee something is always in place,” says Darren Nomberg, Senior Vice President, Investments at David Lerner Associates.
“The mix depends entirely on the family’s goals and budget, which is why this conversation can benefit from discussing with a financial professional.”
What Priya Chose
Priya and her husband ultimately split the difference. They purchased a 20-year term policy sized to replace both of their incomes through their children’s college years, and a smaller permanent policy intended to cover final expenses and leave a modest legacy regardless of when either of them passes away.
The combination cost less than either of them expected, and it gave them a plan that matched both their near-term obligations and their longer-term goals.
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The subject of this article is fictitious and created for illustrative purposes only. It is based on events of a similar nature and should not be interpreted as a direct depiction of any specific individual, organization, or incident. Any resemblance to actual persons, living or deceased, or actual events is purely coincidental. David Lerner Associates does not provide tax or legal advice.