What is the key distinction between temporary and permanent life insurance?

The key distinction between temporary and permanent life insurance lies in the fact that permanent insurance may build cash value. This feature allows policyholders to accumulate savings within the policy, which can grow on a tax-deferred basis. In many cases, the cash value can be accessed through loans or withdrawals, providing a financial resource for the insured if needed.

Temporary insurance, often referred to as term life insurance, typically does not offer any cash value component. It is designed to provide coverage for a specific period, such as 10, 20, or 30 years, without accumulating additional financial benefits over time. This fundamental difference in purpose and function is critical in understanding the two types of life insurance.

While it is true that temporary insurance is often more affordable than permanent insurance, this alone does not define the primary distinction between the two. Similarly, temporary insurance being offered without medical exams or permanent insurance expiring after a certain period also do not capture the essence of the unique characteristics that fundamentally differentiate permanent life insurance’s cash value aspect.