Permanent Life Insurance: Is It Right for Me?

Shawn Plummer

CEO, The Annuity Expert

When it comes to life insurance, there are two main types: term and permanent. Most people choose term life insurance because it is more affordable and provides protection for a specific period of time. However, permanent life insurance can be a good option for some people, especially if they want to leave a legacy for their loved ones. This guide will discuss the pros and cons of permanent life insurance so you can decide if it suits you.

What is permanent life insurance Coverage?

Permanent life insurance is coverage that remains in force for the policyholder’s entire life, as long as premiums are paid. This can make it an attractive option for those who want to be sure their loved ones will be taken care of financially in the event of their death.

There are two main types of permanent life insurance: whole life and universal life.

  • Whole life policies are the original type of permanent life insurance, and they typically have level premiums and guaranteed death benefits.
  • Universal life policies offer more flexibility, allowing the policyholder to adjust their premium payments and death benefit amount as their needs change over time.

Whether you choose whole or universal life, permanent life insurance can provide peace of mind knowing that your loved ones will be taken care of financially if something happens to you.

How does a permanent life insurance policy work?

When most people think of life insurance, they think of term life insurance. This kind of insurance pays out a death benefit if the policyholder dies within the term of the policy, typically 20 or 30 years. On the other hand, permanent life insurance is designed to last a lifetime. Your policy will remain in force if you continue to pay your premiums.

Permanent life insurance policies have two main components: the death benefit and the cash value. The death benefit is the money paid out to your beneficiaries if you die while the policy is in force. The cash value account is an account that grows over time and can be used to pay premiums or withdraw for other purposes.

When your waiting period is up, you may withdraw cash to help you when you need it most. For example, if you have an emergency medical condition, the monetary value can be used to pay for health costs. Many policyholders utilize cash value in addition to these reasons, such as saving for retirement or increasing retirement income.

Permanent life insurance policies typically have a tax-deferred cash value, which means you won’t pay taxes on any gains until the policy ends. In addition, your beneficiaries will get the death benefit when you die as the insured.

What Are The Types Of Permanent Life Insurance Coverage?

There are three main types of permanent life insurance coverage: whole life insurance, universal life insurance, and final expense insurance.

All three types of coverage have advantages and disadvantages, so it’s essential to compare them before choosing a policy.

  • Whole life insurance may be the best option if you’re looking for simple coverage that will pay out no matter when you die.
  • However, if you’re looking for more flexibility in your policy, universal life insurance may be a better choice.
  • And if you’re primarily concerned with covering the costs of your funeral, final expense insurance may be your best option.

What Are The Advantage Of Permanent Life Insurance?

A permanent life insurance policy provides coverage for your entire life, as long as you continue to pay the premiums. That makes it a valuable estate-planning tool since it can be used to help pay estate taxes and other expenses.

  • It can also be used as a source of tax-free income in retirement.
  • In addition, permanent life insurance policies build cash value over time, which you can borrow against or withdraw if necessary.
  • And if you’re looking for long-term care insurance, a permanent life policy can be a good option since it will pay benefits regardless of how long you live.

As you can see, there are many advantages to having a permanent life insurance policy.

What Are The Disadvantages Of Permanent Life Insurance?

While permanent life insurance has some advantages, it also has some significant disadvantages.

  • One of the most significant drawbacks is that it is much more expensive than other types of insurance. This is because you pay for the death benefit and the cash value.
  • Another downside is that the interest rates on a whole life insurance policy are often very low. A variable universal life insurance policy is subject to market volatility. You can lose money if you are not careful with your investment choices.
  • Finally, permanent life insurance can be difficult to cancel if you decide you no longer need it. However, you can sell it for cash.

For these reasons, it is essential to consider whether permanent life insurance is right for you.

What are the pros and cons of permanent life insurance?

As opposed to term life insurance, permanent life insurance policies frequently have a cash value component and provide permanent coverage rather than a limited duration. You may withdraw your money value or take out a policy loan as it grows.

However, when purchasing a life insurance policy, one thing to consider is how much coverage your family would require in an accident. Permanent insurance has far more premium costs than term policies and may not be a good investment for youngsters with children and considerable expenses.

If your family’s financial situation is only temporary, a term life insurance policy may be the better option. Most term policies allow you to convert to a permanent policy in a limited time.

Does Permanent Life Insurance Have A Cash Value?

Permanent life insurance features a cash value account. The cash value account grows on a tax-deferred basis, which means that the money in the account can be used to cover the policy’s cash value or borrowed against without triggering a taxable event. The cash value account can also be accessed through policy loans, typically repaid with interest.

What Does The Cash Value Mean?

Regarding insurance, “cash value” refers to the policy’s built-in savings account. This account grows over time, and the money can be used for various purposes, including supplemental retirement income or significant expenses. A policy’s cash value differs from its death benefit, which is the amount of money paid out to beneficiaries upon the policyholder’s death.

What are the Differences Between The Types Of permanent life insurance policies?

When selecting the right permanent life insurance policy, you have several alternatives to evaluate, each of which is meant to be kept for the rest of your life. However, there are several nuances to consider when picking out a permanent life insurance plan for yourself.

  • Whole life insurance is a form of permanent life insurance, with no premium increases throughout the policy’s duration. It also has a set interest rate and death benefit guarantee.
  • Universal Life Insurance is similar to a whole life insurance policy in that it is intended to cover you for the rest of your life. You may change or increase the death benefit with universal life insurance. You might be able to pay premiums at other times if you have funds built up in the cash value, which can be used to pay for insurance costs.

Universal life insurance

Universal life insurance is a form of permanent life insurance mixing aspects of term life insurance with the option to build cash value. This permanent life insurance comes with more choices than whole life coverage.

You pay a premium to cover the life insurance cost, and the rest of your money is placed in cash value investments, which grow tax-deferred over time.

You can alter the premiums on your universal life insurance policy and how much money you put into the cash value component.

The Benefits

  • lifetime protection
  • flexibility to raise and lower your payments as you see fit
  • cash value generally isn’t taxed as it grows.  

Indexed universal life insurance

Suppose you’re searching for a lifelong insurance plan with the flexibility of universal life and a cash value that provides more significant growth potential. In that case, you may want to consider indexed universal life insurance.

How does indexed universal life insurance work? 

IUL, which stands for indexed universal life, is a type of life insurance that gives your loved ones a death benefit if you die. It can also generate cash value in your lifetime based on market fluctuations in a stock market index like the S&P 500.

Premiums are allocated into a fixed account, an index account, or a combination of both with IUL.

  • The fixed account earns interest at a set rate.
  • The index account earns interest at a rate that reflects stock market performance.

You don’t participate in the stock market directly; instead, indexes are used as a “measuring stick” to determine your interest rate. In addition, your money is protected against negative market declines thanks to a zero percent floor.

Variable life insurance allows you to grow your cash value based on market performance and is also subject to market risk.

Guaranteed life insurance

If you don’t qualify for another type of life insurance but want to leave something behind for your beneficiaries, guaranteed life might be an excellent permanent life insurance solution. In addition, no medical exams or health questions are required when purchasing Guaranteed Life Insurance.

The insurance policy is in effect for the rest of your life. However, some guaranteed life insurance requires you to keep your policy for at least two years before receiving a death benefit. If you die before the two-year deadline, your beneficiaries will receive the money you’ve paid into the plan until your death.

The payout is usually limited to around $25,000. This permanent life insurance policy is ideal for seniors who want to ensure their funeral expenses and outstanding debts are paid.

What’s The Difference Between Term Life Insurance And Permanent Life Insurance?

Term life insurance covers a specific period, typically 10-40 years. The benefit of this type of policy is that it is generally less expensive than permanent life insurance. However, it does not build up cash value and will only pay a death benefit if the policyholder dies within the term.

On the other hand, permanent life insurance provides lifetime coverage and builds up a cash value that can be used while the policyholder is alive. Of course, this makes it more expensive than term life insurance, but it can be a more versatile option.

Can I Cash Out A Permanent Life Insurance Policy?

If you own a permanent life insurance policy, you may wonder if you can cash it out. The answer depends on several factors, including your policy type and reason for wanting to sell it. However, in most cases, it is possible to sell your life insurance policy for a viatical settlement or life settlement. This lump-sum payment is typically used to cover medical expenses or other debts.

Permanent Life Insurance Quotes

Compare permanent insurance quotes to find the cheapest rates. Determine whether universal or whole life insurance is worth the cost compared to the more affordable term life insurance.

Next Steps

What Is Permanent Life Insurance? How Does It Work? Is It Worth It?

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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