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Say you buy a life insurance policy that has kicked in immediately or after a waiting period, and you meet your unfortunate demise a day, month, or several years later. Will your beneficiaries receive the entire amount? Broadly speaking, yes.
So how long do you have to have life insurance before it pays out? If you have a 25-year term life policy, then your loved ones are usually covered if you die within the 25-year term. If you have an active permanent life policy, the full death benefit is generally available as long as the policy remains in force during your lifetime.
There’s a significant cost difference between term life and permanent life insurance, though. Stay tuned.
Key Points
• Life insurance offers financial protection for family members after the insured’s death.
• Term life insurance provides coverage for a specific period, with no payout if the term ends.
• Permanent life insurance offers lifelong coverage and includes a cash value component.
• Premiums for permanent life insurance are higher due to the inclusion of a cash value feature.
• Waiting periods and premium costs are important factors to consider when selecting a life insurance policy.
Life Insurance Basics
Life insurance is meant to protect a spouse or partner, children, or other family members upon your death. It is intended to replace your income and avoid a large financial loss while paying the costs of a funeral or a memorial service.
When it comes to life insurance plans, there are two main types: term life and permanent life. Both kinds of insurance are sold by the majority of life insurance companies.
No matter which type you have, when you die, your beneficiaries or the executor of your estate will need to file a claim with the insurance company in order to receive the death benefit. The payout may come in one lump sum or in another form, depending on the insurance company.
How Does Term Life Work?
Term life insurance is often viewed as more cut-and-dried than permanent life insurance. Policy owners make regular monthly payments during the term. The insurance company pays a death benefit, or the amount of the coverage, if the policy owner dies during the term.
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Term life insurance covers a set period, such as 10, 20, or 30 years.
The coverage can range from $25,000 to several million dollars, depending on the insurer and your financial needs and plans. If the insured dies after the time period chosen, the insurance company will not provide the payout.
The intent of term life insurance is to ensure that your financial responsibilities are taken care of in case of an illness or tragedy. A policy can support the financial needs of children, help a stay-at-home parent find their footing, or cover a mortgage, credit card bills, or other outstanding debt.
Parents may decide to buy term life insurance while their children are younger and before they go to college or establish careers. Some people might also choose term life insurance because it typically costs less than permanent life insurance. Others may opt for term life because they believe they’ll be self-insured when the term ends or because they want to protect certain assets, such as paying off a mortgage.
What Is Permanent Life Insurance?
Unlike term life, permanent life insurance provides coverage for a lifetime. For example, when you purchase whole life insurance, a common kind of permanent life, the policy remains in effect for the rest of your life unless you cancel it or miss payments. Beneficiaries receive the death benefit after the insured passes away.
Permanent life insurance can be more complicated because there is a “cash value” included in the policy. These financial products are seen as a combination of insurance and savings.
One of the main differences between term life and permanent life insurance is the amount of the premium, or the money that you pay each month to maintain the policy. Permanent life insurance is usually more expensive than term life insurance because it provides longer coverage.
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What to Consider When Choosing a Policy
There are several things to evaluate before you purchase either term or permanent life insurance. Examining the options will help you decide which type of insurance will best meet your financial needs.
Waiting Periods
A waiting period is the length of time the insured person must wait before some or all of their coverage kicks in. Some life insurance companies will make policies effective immediately or as soon as the first payment is made.
Waiting periods were created to avoid fraud and are one way that insurance companies protect themselves. If the insurance company does not have a waiting period, the policy is likely to be more expensive than one that requires someone to wait.
When applying for any life insurance policy, it’s best to ask if there is a waiting period and whether any exceptions exist. Then, once a policy is issued, it’s smart to confirm the details.
Cost of Premiums
One major factor in weighing term life and permanent life insurance policies is the monthly premiums. Typically, term life insurance costs less — often much less — than permanent life insurance, even though the coverage amount is the same.
The difference is that permanent life insurance has a cash value component. If you need to take out a loan, you can use that money as collateral based on the interest rate given in a policy. The cash value part of a permanent life insurance policy generally grows tax-free, though in some cases, withdrawals, loans, and surrenders may be taxed.
Permanent life insurance has a cash value component and costs more than term life.
One main difference between term life and permanent life is that if you live beyond the term that you chose, no money is paid out. Term life insurance policies have no cash value.
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Making the Right Choice
Choosing between term life and permanent life insurance policies can be difficult. While permanent life insurance policies have a savings portion, the “cash value” is invested by the insurance companies, and they choose what assets they want to invest in.
Other criteria that may help you make a decision are whether you are married or not, if you have children and how old they are, if you think your salary will increase over time, and how much debt you have, such as your mortgage, other loans, and credit card bills that would need to be paid off if you died.
Changing a Current Policy
You may already have a life insurance policy, but life circumstances can change rapidly. Some life insurance companies might allow you to either increase or decrease the amount of coverage.
Permanent life insurance policies tend to be more complicated, and changes may mean that you will have to pay administrative fees.
Most permanent life policies have a surrender charge, which is subtracted from the top of your cash value if you end, or surrender, the policy. Surrendering a policy means giving it up. You’ll receive the cash value, minus any fees. By canceling the life insurance policy, your heirs will receive nothing from it when you die.
The Takeaway
Life insurance can help protect your family from the financial impact of your death. Term life insurance provides coverage for a set amount of time. If the insured person dies during that time, their beneficiaries receive the entire payout. Permanent life, on the other hand, provides lifelong coverage and comes with a cash value. Beneficiaries receive the payout after the insured dies. As you consider policies, be sure to note the costs involved.
You can’t predict the future, but you can plan for it. Shop for term life insurance with SoFi and you could help protect your family's future with policies with clear pricing starting at just $19/month.
Explore your life insurance options with SoFi Protect.
FAQ
How long does life insurance take to pay out a benefit?
Life insurance generally pays out once a valid claim is filed after the insured person’s death, as long as the policy is active. The timing depends on the insurer’s review process, but coverage applies if the policy was in force during the qualifying period or lifetime.
What is the difference between term life and permanent life insurance?
Term life insurance provides coverage for a specific period and pays a benefit only if the insured dies during that term. Permanent life insurance lasts for the insured’s lifetime and includes a death benefit as well as a cash value component.
Why do people choose different types of life insurance?
People often choose term life insurance because it is typically more affordable and useful for covering temporary financial needs like mortgages or raising children. Permanent life insurance is chosen for lifelong coverage and its added cash value feature, despite higher premiums.
Prices start at $19/month based on a 30-year-old female rated Preferred non-tobacco for a $500K policy for a 10-year term. Individual rates will vary as specific circumstances will affect each customer's rate. Rate valid as of 07/08/2026. Coverage and pricing are determined by our provider network based on eligibility and underwriting criteria. SoFi Agency does not issue policies, underwrite insurance, or pay claims.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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