When you shop for a life insurance policy, you usually have to choose between to main types — term life and permanent life insurance. Term life has an expiration date and simply offers a death benefit payout. Permanent life insurance doesn’t expire and comes with a cash value component that earns interest over time in addition to the death benefit.
The two most common types of permanent coverage are whole life and universal life insurance. Whole life comes with level premiums and a guaranteed minimum cash value, while universal life offers more flexibility — you can make changes to both your premium and your death benefit.
Permanent life insurance is usually a good option for people looking to use life insurance to diversify their investment portfolio or those with long-term financial obligations or coverage needs, like dependents who require lifelong care.
If you’re on the market for a simple, affordable coverage option to protect your income and provide your dependents with a financial safety net to cover any debts — including a mortgage or any other types of personal loans — term life insurance might be a better fit for you than permanent life insurance.
Ready to shop for life insurance?
What is permanent life insurance?
Permanent life is a type of life insurance that never expires as long as you pay the premiums.
Each type of permanent life insurance offers slightly different features, but 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.)
Permanent life vs. term 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. Unlike permanent life insurance, term life insurance only lasts for a set period, usually 10 to 30 years.
Term life is one of the most affordable life insurance coverage options on the market and comes with few rules and tax restrictions.
Permanent life insurance is usually five to 15 times more expensive than term life for a couple of reasons — its lack of expiration date and cash value component.
→ Learn more about the differences between term life and permanent life insurance
Pros and cons of permanent life insurance
Pros
Permanent coverage. A permanent life insurance covers you for life — you don’t need to worry about the expiration date on your policy, which can be especially beneficial if you have dependents that will require long-term care.
Investment opportunities. Permanent life insurance offers an additional tax-free investment alternative, which can be useful if you’re already maximizing your contributions to tax-advantaged accounts like a Roth IRA or a 401(k).
Cons
Cost. Permanent life insurance is significantly more expensive than term life, which makes it hard to keep up with premium payments in the long run. If you can’t afford your policy for its entire duration and it lapses, you might risk leaving your family without coverage.
Risk of reducing your death benefit. While many permanent life insurance policies allow you to withdraw money from the cash value while you’re alive, you might risk eating into the death benefit you’ll leave to your beneficiaries if you can’t pay the money back.
How much does permanent life insurance cost?
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 whole life insurance 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 — a type of permanent coverage aimed at covering end-of-life expenses, like a funeral — doesn’t come with a cash value, but offers coverage to people with more complex health issues.
A 50-year-old could pay between $52 and $137 per month for $25,000 of coverage depending on the type of final expense coverage they have.
Types of permanent life insurance
The 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 on a fixed interest rate and has a guaranteed minimum (or “floor”).
Whole life also comes with 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.
Universal life also comes with 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.
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’s 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’s 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’s 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’s no guaranteed minimum gain tied to the index funds, but it’s 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 doesn’t 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.
Is permanent life insurance worth it?
Purchasing a permanent policy usually isn’t worth it for many people looking for life insurance 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 manager and certified financial planner at Policygenius.
A permanent life policy can be a good fit for people with complex financial needs, including:
Those who have maxed out other retirement accounts and need 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
Most people looking for an affordable way to protect their dependents financially in the event of their death 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.
Other types of life insurance
Frequently asked questions
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 doesn’t 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’ll 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.
