What Is the Difference Between Regular Life Insurance & Term Life Insurance?

There are some basic differences between regular and term insurance.

Those looking to purchase life insurance can choose between two basic types. Term insurance provides basic insurance protection while regular or permanent plans offer the opportunity to accumulate cash over time.

Identification

Term life insurance is designed to provide coverage for a specific period of time, such as to coincide with a home mortgage, and is lower in premium because it does not build cash value. Permanent life insurance lasts for the life of the insured and is higher in premium. Part of the premium pays for the cost of insurance while the rest goes into a cash accumulation fund.

Functions

Both regular and term insurance will provide a death benefit when the insured passes away. However, regular insurance provides additional living benefits. The policyholder can take the cash value that accumulates over time in the form of a low-interest loan.

Considerations

According to the SmartMoney website, purchasing term insurance is better as a long-term investment strategy, as the lower premiums means there is more money available for investment purposes. Because of the higher costs associated with regular insurance, the term policyholder can be better off by investing the premium difference in other investment vehicles such as mutual funds.

References

• SmartMoney: Term or Whole Life?
• MSN Money: Term or Permanent Life Insurance?