Permanent life insurance doesn’t expire and builds cash value, but the premiums are costly.
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Senior Manager, Case Management
Updated November 12, 20213 min read
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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.
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.) Final expense insurance, which is intended primarily for end-of-life expenses, does not have a cash value.
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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 $52 and $137 per month for $25,000 of coverage depending on the type of final expense coverage they have.
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, 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 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) has a flexible premium and death benefit based on cash value performance. The interest rate is subject to change. There are also two different types of death benefits: level or increasing with cash value.
Indexed universal life insurance invests the cash value in a selection of funds offered by your insurer. Cash value growth is tied to broader market trends, so it could increase faster than the cash value of a whole life policy. But, you bear the financial risk if the market fluctuates.
Variable life insurance 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.
Joint life insurance covers two people and is most often bought by married couples.
Survivorship life insurance is a type of joint insurance that pays out after both policyholders die instead of after one dies (also called a first-to-die policy).
Split-dollar life insurance isn't technically a type of permanent life insurance. 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 as 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.
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
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
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.
Whole life insurance is a type of permanent life insurance, and the most common type of permanent policy.
Permanent life insurance does not expire as long as you continue paying premiums.
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.
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.