Term life insurance covers you for a set number of years and costs less. Permanent life insurance covers you for life and builds cash value, but it costs more. The right choice for you depends on how long you need the coverage and whether you also want it to build cash value.
Both types protect your family. But they work in very different ways, and the difference matters more than most people realize.
What Is Term Life Insurance?
Term life insurance is coverage that lasts for a set period, usually 10, 20, or 30 years. If you pass away during that term, your beneficiaries get the death benefit. If the term ends and you're still alive, the coverage stops unless you renew or convert it.
How Term Premiums Work
Term premiums stay low because the policy has an end date. You're paying only for pure protection, not for any earnings feature. That's why a healthy 35-year-old can often get a large death benefit for a modest monthly cost.
When Term Coverage Makes Sense
Term works well when your need for coverage has a natural end point. Think about a 20-year mortgage, or the years until your kids are grown and financially independent. Once that need passes, you may not need the coverage anymore. We go deeper on this in our guide to term life insurance in Columbus.
Pro Tip: Many term policies include a conversion option. This lets you switch to a permanent policy later without a new medical exam, as long as you convert before a set deadline in your contract. Ask your advisor about this deadline before you buy.
What Is Permanent Life Insurance?
Permanent life insurance stays in force for your entire life, as long as you keep paying the premiums. It can also build cash value, an earnings component inside the policy that may grow over time.
Whole Life, Universal, and Variable: Not All Permanent Policies Are the Same
Whole life offers fixed premiums and typically guarantees a minimum cash value accumulation as long as required premiums are paid. Universal life gives you more flexibility in premiums and death benefit. Variable life ties your cash value to investment sub-accounts, which means it can also lose value. We've covered whole life insurance and variable life insurance in separate articles if you want to compare them directly.
How Cash Value Can Build Over Time
Part of every premium payment goes into the policy's cash value. That amount can grow slowly at first, then faster as the account compounds. Under current federal tax rules, the death benefit paid to your beneficiary is generally free from federal income tax (IRS Publication 525).
Did You Know? Cash value growth inside a permanent policy is generally tax-deferred. You don't owe income tax on the growth each year.
Term vs. Permanent: A Side-by-Side Look
Term Life | Permanent Life | |
Coverage length | Set period (10–30 years) | Your entire life |
Premium cost | Lower | Higher |
Cash value | None | Can build over time |
Suitable for | Temporary needs (mortgage, income years) | Lifelong needs (final expenses, legacy, estate planning) |
Cost Differences
Term costs less because it carries no cash value component. Permanent policies cost more because part of every payment generally builds cash value you can access later, through a withdrawal or a policy loan.
Pro Tip: A policy loan against your cash value isn't taxed as income while the policy stays in force. But if you don't repay it, the loan balance reduces your death benefit. Ask your advisor to run the numbers before you borrow against a policy.
Coverage Length and Flexibility
Term is simple: you're covered, then you're not. Permanent coverage flexes with you. You can often adjust premiums or death benefits on universal life policies as your income changes.
The Ohio Detail Most People Miss About Cash Value
Here's something Ohio advisors see clients misunderstand often: not every dollar of cash value is protected if your insurance company fails.
Did You Know? The Ohio Life and Health Insurance Guaranty Association protects policyholders if a licensed insurer becomes insolvent, but the protection has limits. Current limits as of September 2026 cap death benefit protection at $300,000 and cash surrender value protection at $100,000 per person, per company (Ohio Life & Health Insurance Guaranty Association).
What Happens If Your Insurer Fails
If, hypothetically, you've built up $150,000 in cash value with one insurer, only $100,000 of that is guaranteed under Ohio's system. This is rare. Most Ohio-licensed insurers are well capitalized and closely regulated. But it's a reason to ask about a carrier's financial strength ratings, not just its premium quote, before you commit to decades of payments.
Why This Doesn't Mean Skip Permanent Coverage
This isn't a reason to avoid permanent insurance. It's a reason to choose your carrier carefully and consider diversifying large amounts of coverage across more than one company when it makes sense. Ohio law also requires every life insurance policy to become incontestable after it's been in force for two years, meaning the insurer generally can't deny a claim over application errors after that point (Ohio Revised Code 3915.05).
How to Decide Which One Fits Your Goals
Ask yourself these three questions:
Question: How long do I actually need this coverage? Answer: If your need ends when your mortgage is paid off or your kids finish school, term coverage likely fits. If you need coverage for your entire life, like covering final expenses or leaving a legacy, permanent coverage fits better.
Question: Do I want my life insurance to also build cash value? Answer: If yes, permanent insurance's cash value feature can do that. If you'd rather invest separately and keep insurance premiums low, term is usually the more efficient choice.
Pro Tip: You don't have to pick just one. Many families layer a large term policy for their highest-need years with a smaller permanent policy that lasts a lifetime. This blends lower cost now with lifelong protection later.
Why Many Families Use Both
A large term policy can protect your family through the years your income and debts are highest. A smaller permanent policy stays in place after that term ends, covering final expenses or leaving something behind. Neither option has to do the whole job by itself.
The Bottom Line
Term life insurance costs less and covers you for a set number of years. Permanent life insurance costs more, lasts your whole life, and generally builds cash value you can use later. Your choice comes down to how long you need coverage, whether cash value growth matters to you, and how a carrier's financial strength fits into that decision.
Talk with a licensed advisor about your specific income, debts, and family goals before choosing a policy or a coverage amount. Schedule a consultation with Centric Financial Group to walk through your options and find the right fit for your family.
Frequently Asked Questions
Is term or permanent life insurance better? Neither is universally better. Term fits temporary needs, like income replacement during working years, at a lower cost. Permanent fits lifelong needs, like final expenses or legacy planning, and can build cash value along the way.
Can I convert term life insurance to permanent coverage later? Many term policies include a conversion option that lets you switch to permanent coverage without a new medical exam. This option usually has a deadline, so check your policy contract or ask your advisor for the exact date.
Is the cash value in a permanent policy protected if my insurer goes out of business? Only partly. In Ohio, the state guaranty association currently protects up to $100,000 of cash surrender value and $300,000 of death benefit per person, per company. Amounts above those limits aren't guaranteed.
Do I have to choose only one type of life insurance? No. Many families combine a term policy for high-need years with a smaller permanent policy that lasts a lifetime. This can lower your overall cost while still covering lifelong needs.
Withdrawals and loans from a life insurance policy reduce the death benefit and cash value, may increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.
Life insurance should be purchased by individuals that have a need to provide a death benefit to protect others with insurable interests in their lives against financial loss. Life insurance is not a retirement plan, investment, or savings account.
These concepts were derived under current laws and regulations. Changes in the law or regulations may affect the information provided.
All numeric examples and any individuals shown are hypothetical and were used for explanatory purposes only. Actual results may vary.
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