Insurance companies take a number of factors into account when calculating annual premiums. These factors include the amount of the policy and its type, the age and sex of the person being insured and whether or not that person is a smoker. Term insurance is best suited to cover short-term expenses such as mortgage and the costs of education. Premiums remain constant during the life of the policy, but increase when it is renewed. Benefits are paid only if the person insured dies during the term of the policy.
Premiums remain constant regardless of the age or health of the policyholder.
Permanent insurance is best suited for long-term expenses and can help replace the income of the person whose life was insured. As long as the premiums are paid, the policy remains in effect. As the premiums continue to be paid, the policy builds up a cash value that the person holding the insurance receives in the form of dividends. These dividends can be used to lower premiums, purchase more insurance or pay for term insurance. With variable life insurance, the policyholder is not allowed to change the amount of the premiums or the amount of coverage.