Temporary
This type of insurance is characterized by a defined time period, which is stated at the time the contract is initially executed. If the contract is an Annual Renewable Term (ART), the contract does not fall in the Temporary category. This is because the ART contract only provides coverage for one year.
Term
Term life insurance (Term Assurance in Queen's English) provides life insurance coverage for a specified number of years for a specified premium (amount). The policy does not accumulate cash value. Term insurance is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else.
The three key factors to be considered when purchasing term insurance are: face amount (protection or death benefit), premium to be paid (cost to the insured), and length of coverage (term).Various insurance companies in the United States sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase. A common type of term is called "Annual Renewable Term (ART)".
It is a one-year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Another common type of term insurance is mortgage insurance, which is usually has a level premium and declining face value for the policy. The face value is intended to equal the amount of the mortgage on the policy owner’s residence so that the mortgage will be paid if the insured dies.
Guaranteed renewability is an important policy feature for any prospective owner or insured to consider because it allows the insured to acquire life insurance even if, at a later time, they become uninsurable as judged by industry standards.
Permanent
Permanent life insurance is a life insurance policy that remains in force until the policy matures (pays out), unless the owner fails to pay the premium when due (e.g., at which time the policy expires). The policy cannot be cancelled by the insurer for any reason except fraud in the application, and cancellation for such fraud must be completed within a period of time defined by law (usually two years).
Permanent insurance builds a cash value that reduces the amount at risk to the insurance company and thus the insurance expense over time.
This means that a policy with a million-dollar face value can be relatively inexpensive to a 70-year-old because the actual amount of insurance purchased is much less than one-million dollars. The owner can access the cash value of the policy by withdrawing money, borrowing against the cash value, or surrendering the policy and receiving the surrender value.
