Term Life vs. Permanent Life: The Cost of Insurance (COI) Over Time

The choice between Term and Permanent Life Insurance often comes down to the comparison of their respective Cost of Insurance (COI) structures over the policyholder’s lifetime.

Term Life COI (Rising)

Term insurance pays only the true, natural rate of mortality risk. This cost is low initially but increases dramatically at renewal (or at the end of the guaranteed period) because the insurer’s risk of paying a claim rises sharply with age.

Permanent Life COI (Levelized)

Permanent policies levelize the premium. This is achieved by **overcharging** for the COI in the early, low-risk years, building the cash value. This cash value then subsidizes the true, high COI in the later, high-risk years, keeping the out-of-pocket premium fixed and manageable for life.

This levelizing structure is the core reason Permanent Life is more expensive initially but offers guaranteed, lifelong coverage at a predictable cost.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. A permanent policy is a commitment to pay the levelized cost for the long term, gaining the stability and cash value benefits.