Permanent life insurance

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.

Despite its benefits, permanent life insurance isn’t recommended 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?

Permanent life insurance is any life insurance policy that provides coverage for your entire life. Though each type of permanent life insurance offers slightly different features, they all:

• Pay a death benefit to your beneficiary when you die.

• Charge premiums to keep the policy active. 

• Provide coverage for life.

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.

Term vs. permanent life insurance

Permanent life insurance and term life insurance both offer financial security to your loved ones when you die, but are otherwise very different. Permanent policies are exactly what they sound like: permanent. The coverage lasts your entire life, whereas a term life insurance policy only lasts for a set period, usually 10-30 years.

The longer coverage period and the cash value included in most permanent insurance policies are what make them five to 15 times more expensive than term life insurance policies. 

Few people need lifetime coverage or an additional investment account, and cash value interest rates are lower than what you can earn from traditional investing. Term insurance provides much more affordable coverage, and you pay for it only as long as your family needs it.

→ Read our full comparison of term and permanent life insurance

Term vs. permanent life insurance: Cost comparison

The chart below shows the monthly cost of a 20-year term policy, a whole life policy, and two different final expense policies for a 50-year old male:

For up to four times less in monthly premiums, a term life policy offers a death benefit that’s 2.5-10x higher than any permanent insurance options.

Types of permanent life insurance

The different types of permanent life insurance mainly vary in how they grow the cash value of your policy. The outliers, simplified issue and guaranteed issue life insurance, typically have a maximum death benefit of $50,000 with very limited cash values and are best for those who don’t qualify for traditional life insurance.

• Whole life insurance is the most common type of permanent life insurance. The cash value grows at a modest rate (with a guaranteed minimum) and premiums stay level for the duration of the policy.

• Universal life insurance (also called adjustable life insurance) allows you to change your policy’s premium and death benefit amounts without getting a new policy based on cash value performance. The interest rate is subject to change, rather than fixed. There are also two different types of death benefits available: level or increasing with cash value.

• Indexed universal life insurance invests the cash value in a selection of funds offered by your insurer. The growth of the cash value is tied to broader market trends, so it could grow faster than the cash value of a whole life policy. But, you bear the financial risk if the market fluctuates.

• Variable life insurance typically offers many different investment options and sub-accounts from the insurer, some tied to market trends and some not. Due to the investment risks, variable life insurance is considered a securities contract.

• Variable universal life insurance 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.

• Final expense insurance includes simplified issue and guaranteed issue insurance and is intended for those who need to cover end-of-life expenses or don’t qualify for traditional coverage. Policies have smaller coverage amounts, usually between $10,000 and $50,000.

• Joint life insurance covers two people and is most often bought by married couples. Survivorship life insurance is a type of joint insurance. Two policies for each person is typically better than one joint policy.

• Split Dollar life insurance isn't technically a type of permanent life insurance. Rather, it's a contract between two or more parties to split the ownership and benefits of a permanent life insurance policy.

• Pre-Need Life Insurance lists a funeral home the beneficiary of your policy and pays only for your service and burial arrangements, which you can choose in advance.

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

How much does permanent life insurance cost?

Permanent life insurance premiums vary based on the type of permanent insurance you buy, your health and lifestyle, and how quickly you plan to fund the policy. 

Most providers for whole life insurance give you the option to pay premiums up to a certain age (usually 65, 99, or 121 years old), or less commonly, over 10 or 20 years. Funding your policy over a shorter period translates to higher premiums and vice versa.

Premiums for other types of permanent policies, such as universal life, vary based on the annual cost of the insurance policy plus any amount to fund cash value reserve. For example, if your universal life insurance costs $500 a year when you're 30, you may choose to pay $5,000 a year to build up a cash reserve to pay for the much higher costs of insurance later on in life.

Permanent coverage won’t do you or your beneficiaries much good if it lapses, so make sure you budget for the high premiums.

Whole life insurance

Your rates for whole life insurance depend on how much insurance you need, how long you pay premiums (up to a certain age or term), and your age. You’ll spend more money each year for a policy that is paid up to age 65 or 10 Pay and 20 Pay because the premium payments are packed into a shorter period. You’ll spend the least amount annually if you purchase a policy paid up to age 121 because you have more time to pay off the policy.

According to our data, a 30-year-old non-smoking male can expect to pay about $48 per month for a $100,000 policy that is payable up to age 121.

→ See more detailed whole life insurance rates and quotes.

Variable life insurance

How much you pay for variable life insurance is determined by your premium payment schedule. 

Part of the premium payment goes toward the face value and the other part of the payment goes into the cash value. The death benefit amount will also fluctuate over time, but your beneficiaries are guaranteed a minimum payout when you die.

Variable life insurance quotes are tailored specifically to each policyowner. 

Universal life insurance and variable universal life insurance

“Universal life insurance policies don't have specific rates, as the premiums are flexible,” says Patrick Hanzel, CFP™ and Advanced Planning Team Lead at Policygenius.

Depending on the amount of coverage you select, you could choose to pay a lower or higher premium based on your personal preferences, though most insurers have a set minimum amount you can pay. For example, if you have a $1 million policy, you can pay $100 per month or $1,000 per month. The accrued cash value from your universal life insurance policy can also be used to pay your premiums.

The lower premium you pay, the higher chance that the policy could lapse in the future, which is why universal life insurance policies can be a risky choice if you haven’t consulted a financial advisor or licensed insurance agent.

Final expense life insurance

Final expense life insurance can be simplified issue or guaranteed issue. The cost for either of these policies  is higher than term or whole life insurance policies for less face value. That’s because final expense policies generally have less restrictive underwriting and are used to pay for end-of-life expenses. 

A 60-year-old non-smoking male can expect to pay about $186 per month for a $25k guaranteed issue life insurance policy or about $98 per month for a $25k simplified issue policy.

→ Reach out to a Policygenius agent for free to learn more and compare sample premiums across multiple insurers.

Is permanent life insurance worth it?

Purchasing a permanent policy usually isn’t worth it due to the costly premiums and low return on investment, which result in a high rate of policy lapse. 

“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 are seeking an additional vehicle for tax-deferred savings.

• People with special needs children or other lifelong dependents.

• High net-worth individuals who want to create a tax-free inheritance for their children or offset the costs of an estate tax on their assets.

• Seniors who have outlived their term life insurance coverage or don’t have enough savings to pay for final expenses such as funeral and burial costs.

→ Find the best life insurance company for your circumstances

Pros and cons of permanent life insurance

Pros:

• A guaranteed payout for life

• Cash value growth

• Potential for liquidity

• Tax and estate planning benefits

Cons:

• High premiums for comparatively smaller benefits

• Smaller investment gains than traditional investing

• Unpredictable cash value growth

• Taxes and fees attached to cash value

Most people should purchase a term life insurance policy as opposed to a permanent life insurance policy. Purchasing a term policy and investing the difference 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.

Other types of life insurance

• No-medical exam life insurance

• Supplemental life insurance

• Voluntary life insurance

• Key person insurance

• Dead peasant insurance

• Accidental death and dismemberment (AD&D) insurance