Types of life insurance: Term vs Permanent

How Life Insurance Works

When you buy life insurance, you pay premiums to an insurance company. In return, the company agrees to pay a death benefit to your beneficiary which can be anyone you choose, such as your spouse or children. Many companies can provide this protection, regardless of your age.

All Policies Aren’t the Same

Types of life insurance are divided into two broad categories: term and permanent. Term life coverage lasts for a set period of years. Permanent life, also known as whole life, can last as long as you live.

Term Life Insurance vs. Permanent Life Insurance

Term Life Insurance Permanent Life Insurance
Protection for a set period of time Protection that lasts a lifetime
Rates that increase over time Rates that don't usually increase
No cash value Builds cash value

Why Choose Term Life Insurance?

Term life insurance is a way to get the coverage at a lower initial rate, with the understanding that rates will go up as you age.

Why Choose Permanent Life Insurance?

Permanent life insurance can provide premiums that won't go up as you age; plus it builds cash value that accumulates over time.

How Much Life Insurance Do You Need?

Begin by looking at the resources your beneficiaries already have, such as savings, Social Security, a pension or other insurance policies. Then think about the final expenses they may face - for instance, funeral costs, medical bills you may leave behind, rent and utilities, as well as the ongoing costs of maintaining their lifestyle. This will help you determine the right amount of coverage you need.

Adding to Life Insurance You Have

If you have already purchased life insurance, consider the effects of inflation and reevaluate your coverage amount to make sure you have enough. You'd need $1.61 in 2021 to equal the buying power of $1.00 in 2000, so what seemed like plenty of coverage back then may not be enough now1. Also think about whether your needs have changed, particularly if it's been many years since you've reviewed your insurance policy.

Planning for the Future

Helping loved ones cope with immediate expenses is the first thing that most people think about when purchasing life insurance. But you can also use life insurance to help secure your family's future. Even a relatively small amount of life insurance may be enough to help with the down payment on a house or simply start a savings fund for someone you care about.

Once you decide on the type and amount of life insurance coverage you need, it's important to choose a life insurance company that you can trust. Look for a stable company with strong financial strength ratings from top independent rating services, such as A.M. Best, Fitch, Standard & Poor's, and Moody's Investors Service.

1U.S. Bureau of Labor Statistics, CP Inflation Calculator, December 2022.

This article is provided by New York Life Insurance Company for informational purposes only. This article is not intended to provide tax, legal, financial, or accounting advice. Please consult your own professional for advice specific to your circumstances.