What is the main difference between term plans and permanent plans?

The main distinction between term plans and permanent plans lies in their fundamental structures and benefits. Permanent plans are designed to offer both a death benefit and a cash value component, which can serve as a savings or investment element over time. This duality allows policyholders not only to ensure financial protection for their beneficiaries but also to accumulate value that can be borrowed against or withdrawn for various needs.

On the other hand, term plans are predominantly focused on providing protection. They offer a death benefit for a specified term but do not include any cash value accumulation. This means that while policyholders are covered against the risk of mortality for the duration of the term, there is no savings or investment feature that can be accessed later.

The other options introduce elements that partially mischaracterize the nature of these plans. Permanent plans do offer dividends but mainly through specific types, like participating whole life insurance, rather than it being an overarching feature applicable to all permanent plans. Moreover, while term plans can be renewed or converted in specific situations, this characteristic doesn’t define the principal distinction between them and permanent plans. Thus, understanding that permanent plans incorporate both protection and a savings feature clarifies why the first choice is the correct one.