This is the simplest and generally the cheapest form of life insurance. It has a specified coverage period (term), but can usually be renewed or converted into a permanent policy at the end of the term. Premiums are generally affordable initially, but can increase significantly when renewed, and also increase based on age and health factors. There is no cash value.

All other types of life insurance are permanent. They all include a savings element that builds cash value, in addition to the death benefit. Once that cash value accumulates, it is accessible to the policyholder tax-free. The following are some of the common types of permanent life insurance.

Whole life insurance is a type of permanent insurance that offers life-long coverage combined with a cash-value savings component. This type of policy has higher premiums than term life. Premiums remain constant throughout the policy and a portion is invested by the company, which becomes the cash value of the policy. Whole life insurance pays a fixed amount upon death. These are more expensive than term policies in the early years, but they even out because the premium does not increase.

Universal life insurance is another type of permanent insurance policy that combines term insurance with the ability to earn interest on the cash value, paying a market rate of return. Cash value grows tax-deferred, and can be withdrawn or borrowed from the policy. It is more flexible than whole life insurance as it also allows you to change your premium payments and death benefit, within limits. This policy has the potential for higher earnings on the savings component. There is usually a guaranteed return on the cash value. Disadvantages include higher fees and the possibility of increasing premiums.

Variable life insurance is similar to universal life insurance in terms of flexibility and an investment aspect. It generally has fixed premiums, but instead of simply earning interest on the accumulated cash value, policy owners have more control over how to invest that cash. The ability to invest in professionally managed investment options allows for the potential to accumulate cash value while providing death benefits protection. However, there is greater risk for loss due to this benefit.