Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.
Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.
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This article has been reviewed by a licensed Policygenius expert to ensure that sources, statistics, and claims meet our standard for accurate and unbiased advice.
Permanent life insurance, sometimes called cash value insurance, is an umbrella term for life insurance policies that don’t expire. Permanent and term life insurance are the two main types of life insurance. Most permanent policies also have a savings-like cash value that earns interest over time.
Permanent life insurance isn’t right for most people because it’s significantly more expensive and complicated than term life insurance. Permanent policies are best for high-income earners or people with lifelong dependents.
What is permanent life insurance?
Each type of permanent life insurance offers slightly different features, but they all:
Pay a death benefit to your beneficiary when you die
Most permanent policies also put a portion of your premiums into a tax-deferred cash value account, which grows over time. (The exact portion and growth rate depend on your policy.) Final expense insurance, which is intended primarily for end-of-life expenses, does not have a cash value.
Permanent life insurance and term life insurance both offer financial security to your loved ones when you die, but are otherwise very different. Unlike permanent life insurance, term life insurance only lasts for a set period, usually 10 to 30 years.
The longer coverage period and the cash value included in most permanent insurance policies make them five to 15 times more expensive than term life insurance policies.
Premiums vary based on the type of permanent insurance you buy, how much insurance you need, your health and lifestyle, and how quickly you plan to fund the policy.
You can choose to pay whole life insurance premiums up to a certain age (usually 65, 99, or 121 years old), or over 10 or 20 years. Making payments for a shorter period translates to higher premiums and vice versa. A 30-year-old could pay $433 to $517 per month for a $500,000 policy payable until age 99.
Premiums for other types of permanent policies differ more based on your policy features. Universal and variable universal life insurance, for example, don’t have set rates because the policies allow you to adjust your premiums within a lower and upper limit.
Final expense insurance doesn’t come with a cash value, but offers coverage to people with more complex health issues. A 50-year-old could pay between $52and$137per month for $25,000 of coverage depending on the type of final expense coverage they have.
Types of permanent life insurance
The 10 main types of permanent life insurance listed below mainly vary in how they grow the cash value of your policy. The two outliers, simplified issue and guaranteed issue life insurance, have a maximum death benefit of $25,000 to $50,000, and are best for those who don’t qualify for traditional life insurance.
Whole life insurance
Whole life insurance is the most popular type of permanent life insurance. Cash value accrues interest over time and can be accessed while you’re alive (though sometimes a penalty applies). The cash value for whole life insurance policies grows at a modest rate, has a guaranteed minimum (or “floor”), and level premiums throughout the life of the policy, meaning the risk for the cash value is minimal.
Universal life insurance
Universal life insurance (also called adjustable life insurance) is more flexible than whole life because you can make changes to both your premium and death benefit. The rate of growth for your cash value, however, is subject to change and is based on an interest rate set by the insurance company (whereas it’s fixed with a whole life policy). There is still a guaranteed death benefit.
Guaranteed universal life insurance
Guaranteed universal life insurance (GUL) is a type of permanent life insurance that comes with fixed premiums, minimal cash value, and a guaranteed death benefit. It’s one of the most affordable and convenient policy types you can purchase to get lifelong coverage.
Unlike other kinds of universal life insurance — that allow you to increase or decrease how much you pay in premiums, with the difference covered by the policy’s cash value — GUL premiums remain the same throughout the life of the policy. And the policy won’t lapse if the cash value isn’t enough to cover the policy expenses, which avoids the risk of poor market performance that other universal life policies face.
Variable life insurance
Variable life insurance has a cash value that grows based on investments in mutual funds offered by your life insurance company. The growth of the cash account correlates to broader market trends, so it’s possible to see faster increases than you’d see with other types of permanent life insurance.
There is no guaranteed minimum cash value, so if the market fluctuates for the worse, you’d bear the investment risk. The death benefit for variable life insurance can fluctuate over time but still has a guaranteed minimum amount.
Variable universal life insurance
Variable universal life insurance (VUL) combines universal and variable policy features: Your cash value is invested in a fund of your choosing and your premium and death benefit can fluctuate. It is similar to universal life insurance in that it has flexible premiums, but differs in its asset options. With a variable universal life insurance policy, you can choose the assets you invest your premiums in and there is no guaranteed minimum death benefit or guaranteed cash value.
Indexed universal life insurance
Indexed universal life insurance is a type of universal life insurance with a cash value that changes based on the performance of an investment index, which you choose from a selection offered by your insurer. Gains are tied to the funds you've chosen. Typically there is no guaranteed minimum gain tied to the index funds, but it is guaranteed the cash value will be protected if the index return is negative.
Joint life insurance
Joint life insurance covers two people and is most often bought by married couples. It's split into two types: first-to-die, where the policy pays out after one policyholder passes away, and survivorship life insurance (also called second-to-die), which pays out after both policyholders pass away.
Final expense life insurance
A less common type of permanent life insurance that does not have a cash value like the others is final expense insurance. This category includes simplified issue and guaranteed issue insurance. These types of permanent life insurance are intended to cover end-of-life expenses or for those who don’t qualify for traditional coverage. Final expense policies only offer low death benefit amounts, up to $50,000.
Pre-need life insurance
Pre-need life insurance is an agreement with a specific funeral home that pays the death benefit to the funeral home to cover your service and burial arrangements, which you make in advance.
Split-dollar life insurance
Split-dollar life insurance isn't technically a type of permanent life insurance, but it's an agreement that involves a permanent policy. Two parties, usually an employer and employee, split the ownership and benefits of a permanent policy.
Due to the lower average rate of return within cash value life insurance policies, we usually only recommend these if other investing avenues have already been utilized.
- Patrick Hanzel, Advanced Planning Specialist and Certified Financial Planner at Policygenius
Should you buy permanent life insurance?
Purchasing a permanent policy usually isn’t worth it due to the high premiums and low return on investment, which make coverage hard to maintain long-term.
“Due to the lower average rate of return within cash value life insurance policies, we usually only recommend these if other money-saving and investing avenues have already been utilized,” says Patrick Hanzel, Advanced Planning Team Lead and certified financial planner at Policygenius.
A permanent life policy can make sense for people with complex financial needs, including:
High-income earners who have maxed out other retirement accounts and need an additional vehicle for tax-deferred savings
Most people should get a term life insurance policy instead of a permanent life insurance policy. Purchasing a cheaper term policy and investing your money separately is the best way to get the most bang for your buck. A Policygenius broker can work with you to determine what the best policy is for your individual circumstance.
What is the difference between a whole life insurance policy and a permanent life insurance policy?
Whole life insurance is a type of permanent life insurance, and the most common type of permanent policy.
Does permanent life insurance expire?
Permanent life insurance does not expire as long as you continue paying premiums.
Is permanent life insurance a bad investment?
Permanent life insurance isn’t a good investment for most people because you’ll get lower rates of return than you would from traditional investing and the cash value options can be difficult to manage.
Should I buy permanent life insurance?
If you will financially support someone into old age or you have a high net worth, you could consider permanent life insurance, but most people only need term life insurance.
Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.
Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.
