The hard part of buying life insurance isn't the application — it's figuring out which kind to buy. There are two big families: term and permanent (which mostly means "universal life"). Here's the difference in plain English.
Term life in one sentence
You pay a low monthly premium for a set number of years (typically 10, 20, or 30). If you die during that term, your beneficiaries get the full coverage amount tax-free. If you outlive the term, the policy ends.
Universal life in one sentence
You pay a higher premium for a policy that never expires. Part of each payment goes toward the cost of insurance, part builds tax-deferred cash value you can borrow against later.
Side-by-side
| Term | Universal Life | |
|---|---|---|
| Duration | 10/20/30 years | Lifetime |
| Cost (35yo, $500K) | ~$25–$40/mo | ~$200–$400/mo |
| Cash value? | No | Yes (tax-deferred) |
| Flexibility | Fixed | Adjustable premium & benefit |
| Best for | Income replacement, mortgage protection | Estate planning, lifelong dependents, business succession |
How most families decide
- Start with term. Buy enough to replace your income through the years your dependents need it (commonly 10–15× your annual income).
- Add universal life only when you have a specific permanent need — estate tax, special-needs dependent, business buy-sell — and only after you've maxed out other tax-advantaged accounts.
Common mistakes
- Buying universal life as "an investment." The internal rate of return is rarely competitive with a basic index fund in a taxable account. Cash value is a feature, not a goal.
- Buying too little term. A $200K policy for a parent earning $80K leaves the family 2.5 years of income — not 20.
- Letting term lapse the year before claim. Set up autopay. Stack policies so coverage doesn't fall off all at once.
Ready to compare? Read the term-life guide → or the universal-life guide →