Permanent vs. whole life insurance: What's the difference?

Simply put, whole life insurance is a type of permanent life insurance. Every whole life insurance policy is a permanent life insurance policy, but not every permanent life insurance policy is a whole life insurance policy.

What is permanent life insurance?

Permanent life insurance is any life insurance policy that is designed to provide lifelong coverage. As long as you are able to pay your monthly premiums, your permanent life policy will remain active your entire life.

What is whole life insurance?

Whole life insurance is a type of permanent life insurance.

Whole life insurance generally includes a cash value component that can be borrowed against or used to pay future monthly premiums. Many people choose whole life insurance to take advantage of the policy’s cash value benefit, which can be used to cover home renovations, college education costs or retirement expenses.

Pro tip: Be careful with a cash value life insurance policy. If you borrow against your policy’s cash value and are unable to pay it back with interest, your beneficiaries could end up receiving a lower death benefit. You could also end up owing a hefty tax bill on the amount of money you borrowed if it’s more than the premiums you’ve paid in, so make sure you only withdraw as much of your policy’s cash value as you can afford to pay back.

A more affordable option: Term life insurance

Term life insurance covers a period of time (the “term”). Because it covers a shorter amount of time, including years where you’re younger, healthier and less likely to pass away, it is often much more affordable than permanent life insurance.

Term life policies allow you to get life insurance coverage for the years in which you are most likely to leave behind financial obligations.

By choosing a 10, 15, 20, 25 or 30-year term life insurance policy, you can carry enough life insurance coverage to provide for your beneficiaries until your mortgage is paid off or your children graduate from college.

When we reviewed online insurance quotes from State Farm, we found that a healthy, 35-year-old man might pay the following premiums for a whole life insurance policy:

In contrast, that same man might pay the following for a Haven Term policy, issued by MassMutual or its subsidiary, C.M. Life:

Estimate based on pricing for eligible Haven Term applicants in excellent health. Pricing differences will vary based on ages, health status, coverage amount and term length. These prices do not reflect the rates for applicants in DE, FL, ND, NY and SD.

If you’re thinking about permanent life insurance, make sure you think about term life insurance as well. In some cases, whole life insurance could be the best life insurance option for you and your family. In other cases, term life insurance could provide the coverage you need at a much lower cost — making term life policies one of the most affordable ways of providing for your loved ones.