Permanent Life Insurance

What Is Permanent Life Insurance?

Permanent life insurance is any life insurance policy that lasts your entire life—unlike term life insurance, which covers you for a set period of time. There are several types of permanent life insurance including:

• Whole life insurance
• Universal life insurance
• Variable life insurance
• Final expense life insurance

Different permanent life insurance policies offer varying features but most have one thing in common: they build cash over the life of the policy out of the monthly premiums you pay. Permanent life insurance can therefore be considered a kind of savings account you build over time, but one that promises to pay out a lump sum to your family if you should die prematurely.

How It Works

1. Permanent life insurance policies agree to pay out a set amount of money tax-free to your beneficiaries when you die, called a “death benefit.”
2. You’ll pay monthly or annual premiums to keep the policy in force and it will remain active your whole life, as long as you keep paying the premiums.
3. Each month, a certain amount of your premium will go toward savings, called the “cash value” of the policy. The death benefit gradually shrinks as the cash value grows, until eventually the cash value comprises 100% of the money the insurance policy will pay out.

Since permanent life insurance is guaranteed to pay out eventually, it is much more expensive and more complicated than term life insurance, which is meant to protect your dependents only for the time period when they’re relying on your income. Most permanent life insurance policies like whole life are six to 10 times more expensive than term life. Our agents can help you decide between permanent and term life insurance. You can get started by comparing life insurance quotes.

Pros & Cons of Permanent Life Insurance

Reasons to buy permanent life insurance

• Protect your family from debts such as mortgage, student loans, etc in the event that you die prematurely
• Build savings that will grow as you pay premiums over the course of your life
• Create tax-free inheritance for dependents (applicable to high net-worth individuals whose inheritance will be subject to estate tax)
• Pay for final expenses like funeral and other outstanding debts seniors may hold

Drawbacks of permanent life insurance

• Limited investment options for the cash value that will eventually comprise all of the death benefit. Likely lower rate of return than investing this money in other ways over the course of your life
• Much more expensive than term life insurance for the same amount of death benefit coverage

Want to keep learning? Read our full analysis on the pros and cons of term life vs whole life policies.

Types of Permanent Life Insurance

Whole Life Insurance

A basic form of permanent life insurance that promises to keep monthly premiums level for your whole life. The amount committed by the insurance company to cover the death benefit declines gradually as the cash value contributed through your premiums grows. Cash value grows at a fixed, guaranteed interest rate.

Variable Life Insurance

Similar to whole life insurance except it allows more investment options for the cash value: investment funds with variable rates of return will reflect broader market trends.

Universal Life Insurance

Similar to whole life insurance except 1) premium costs are subject to change—the rate is variable, and set by the insurer 2) allows the cash value to be used to pay the premiums 3) cash value grows at a variable interest rate set by the insurer

Final Expense Insurance

Permanent life insurance for seniors, final expense insurance covers burial costs and any end-of-life expenses such as outstanding debts. Policies are usually offered at smaller coverage amounts—$10,000 or $25,000.