Permanent Life Insurance Explained

Buying life insurance is one of the best decisions you can make for your family if you suddenly pass away. Regardless of the policy, life insurance can help your beneficiaries pay for your funeral and burial costs. They may even receive a lump sum in the event of your death. 

However, not all life insurance policies are the same. Permanent life insurance is a popular choice among people who don’t want their coverage to expire. However, there are some caveats to be aware of if you plan on applying. 

Below, we’ll explain everything there is to know about permanent life insurance so you can make an informed decision. 

What is permanent life insurance?

Permanent life insurance is a type of policy that offers lifelong coverage. Unlike term life insurance, permanent policies have life insurance terms that do not expire after a certain period of time. This makes them ideal for those looking for financial protection beyond just their working years, such as retirement planning or estate planning. 

With permanent life insurance, you can choose between two main types: whole life and universal life.

Whole life insurance provides guaranteed premiums and death benefits over the policy’s duration, while universal life offers more flexibility over the premium you pay and how your coverage changes over time. 

Both types build cash value over time, allowing you to access money from your policy if needed in the future. To learn more about the difference between the two, check out our guide to whole vs. universal life insurance.

A permanent life insurance policy can also be used to provide additional coverage for your family, such as a spouse or children. This type of insurance may be used to help pay for funeral expenses, medical bills, and other costs associated with the death of a loved one. 

Permanent life insurance can be an important part of your financial plan if you’re looking for long-term protection and financial flexibility for your family. 

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How does permanent life insurance work?

Permanent life insurance is a type of life insurance that provides coverage for your entire lifetime. It also accumulates cash value over time, allowing policyholders to access the money if needed. 

The cash value can be used to pay premiums, supplement retirement income, or provide an inheritance for beneficiaries when you pass away. 

Permanent life insurance policies are bought with one lump sum payment or through ongoing payments over time. 

The amount paid in premiums determines the amount of death benefit and cash value available in the policy. The longer you maintain the policy, the more your cash value grows, and the more opportunities you have to access it via loans or withdrawals without any penalties (subject to limits). 

In addition to providing financial security for yourself and your loved ones, permanent life insurance can also provide tax benefits. 

Is life insurance taxable? The cash value accumulated in the policy is typically sheltered from taxes, and any death benefit proceeds to beneficiaries are generally free of income tax liability.

Typically, there is a waiting period before the policyholder is able to borrow against the savings portion of their policy. The length of this waiting period depends on the type of policy selected.

How much does permanent life insurance cost?

How much life insurance costs depends on a variety of factors, such as your age and health, the type of policy, and the coverage amount. Generally speaking, the younger you are when you get your policy, the lower your premiums will be; as you age, your premiums will increase. 

Your health can also affect the cost of life insurance; if you have any preexisting medical conditions or a history of risky behaviors such as smoking or drug use, these could increase the cost of premiums. 

The type and amount of coverage that is chosen also affects the overall cost. Policies with higher coverage amounts tend to have higher premiums than those with lower coverage amounts. 

To get an accurate estimate of permanent life insurance costs based on your individual needs and circumstances, it is best to speak with a licensed insurance professional. They can help you determine the coverage amount that is most appropriate for your needs and provide quotes from multiple insurers so that you can compare costs and find the best value. 

In addition to cost, it is important to consider other factors when selecting life insurance, such as the company’s financial strength ratings, customer service record, and policy features.

Here is a breakdown of the costs you can expect to pay for permanent life insurance.

A knowledgeable insurance professional can help you evaluate these criteria and select the right policy for your situation.

Permanent Life Insurance vs. Term Life Insurance

When you are deciding on a life insurance plan, term vs. permanent life insurance is an important decision because they are two of the most common types of life insurance policies available. 

Permanent life insurance provides coverage that lasts your entire lifetime, while term life insurance is only active for a certain period of time, such as 10, 20, or 30 years. 

When deciding between permanent and term life insurance, it’s important to consider why you’re buying the policy in the first place. 

If you need coverage that will last as long as you’re alive, then permanent life insurance is likely a better option. This type of policy has a death benefit and cash value component, so it can also be used to help fund retirement or provide additional income for heirs and beneficiaries.

Term life insurance, on the other hand, is a good choice if you’re looking for a less expensive option or if you only need coverage for a certain amount of time. 

Term life insurance quotes are typically much less expensive than permanent life insurance quotes, and they provide coverage for a specified period of time, usually ranging from 10 to 30 years. 

When deciding between permanent vs. term life insurance, it’s important to consider your goals and the length of time you will need coverage. 

Permanent life insurance offers more long-term security and financial stability, while term life insurance can be more cost-effective for short-term needs.

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Pros and Cons of Permanent Life Insurance

Permanent life insurance isn’t for everyone. Here is everything you should consider before buying:

Pros: 

• Permanent life insurance provides lifelong coverage and will not expire as long as you keep paying the premiums. 
• It accumulates cash value over time, which can serve as a form of investment and can be borrowed against in times of emergency or financial need. 
• The death benefit associated with permanent life insurance grows over time, helping to provide more security for your loved ones after you are gone. 
• Permanent life insurance may offer tax benefits on both the income used to purchase it and any gains that accumulate from its cash-value growth.  
• You may have the option to add riders to your policy that can expand its coverage and add additional benefits such as a disability waiver or accelerated death benefits in certain circumstances.

Cons: 

• Permanent life insurance tends to be more expensive than other kinds of insurance since it builds cash value over time. 
• The cost of the premiums may become too high in later years, depending on your age and health status at the time you acquire the policy. 
• It may be difficult to surrender a policy after a few years if you find that it’s no longer suitable for your needs or budget constraints due to its long-term nature and the penalties associated with early withdrawal or surrendering a policy early. 
• Your beneficiaries may have difficulty accessing any accumulated cash value immediately after your death, as they will need to wait until the proceeds are released by the insurance company. 
• Permanent life insurance is a long-term commitment and requires significant premium payments over time, so it may not be suitable for those who have limited resources or a fluctuating income.

What are the four different types of permanent life insurance?

The four main types of permanent life insurance are whole life, universal life, variable life, and indexed universal life. 

Whole life is a type of policy that can provide protection for the insured’s entire lifetime as long as premium payments continue to be made. It also accumulates cash value over time. 

Universal life is a type of policy with an adjustable death benefit and flexible premiums that allows policyholders to change their coverage amount or premium payments throughout the policy’s term. 

Variable life insurance provides similar features to universal life but offers different investment options within its cash-value component. Furthermore, its cash value grows in accordance with the investments selected by the policyholder. 

Finally, indexed universal life insurance combines the features of universal and variable life insurance with the protection of a fixed rate of return based on an index such as the S&P 500. 

It provides flexibility similar to other types of permanent life insurance but carries less risk than variable life insurance. 

No matter what type you choose, permanent life insurance can provide insured individuals with financial security and peace of mind for years to come.

Can you cash out your permanent life insurance policy?

The good news is that you can cash out your permanent life insurance policy. However, cashing out a policy can be a complicated process and is only sometimes the best option. 

First, it’s important to understand that when you surrender or cash out your policy, you receive only the cash value of the policy—not its face value (the amount listed on the policy). 

In addition, if you surrender your policy early in the term of coverage, you may have to pay additional taxes and/or fees that could significantly reduce the amount of money received from cashing out. 

Finally, if you are considering surrendering or cashing out a life insurance policy, it is essential to speak with an expert who has knowledge about tax implications prior to making any decisions.

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How to Buy the Best Permanent Life Insurance

If you’ve decided that permanent life insurance is best for you, the next step is choosing the best policy. Here are some important tips to follow when shopping for a policy. 

Consider Buying One Policy for Two Spouses

If you and your spouse are both looking to purchase permanent life insurance, consider buying a joint policy. This will save you money in the long run because it’s cheaper than two separate policies.

Shop Around

Don’t limit yourself to just one company when shopping for a policy. Compare prices and coverage from different insurers to make sure you’re getting the best deal possible. 

Understand All Types of Permanent Life Insurance Policies

There are several types of permanent life insurance policies available, including whole life, universal life, variable universal life, and indexed universal life. Make sure you understand all these different options before making a decision. 

Work With an Agent

Working with an experienced agent or financial advisor can be helpful when choosing the best policy. They can explain the different types of policies, compare prices from various insurers, and help you make an informed decision. 

Be Prepared to Make a Long-Term Commitment

Permanent life insurance is designed for long-term protection, so it’s important to be prepared to make a commitment to your policy. Be sure you can afford the premiums and are willing to stick with it for the long haul. 

It’s also wise to review your policy annually or whenever you experience a major life event such as marriage, divorce, or the birth of a child. This will ensure that your coverage still meets your needs. 

Determine Which Riders Are Best for Your Policy

Insurance riders are features you can add to your policy that provide extra protection. Common riders include accelerated death benefits, waiver of premium, and accidental death benefit riders. Determine which would be best for your policy based on your specific needs and budget. 

Read the Policy Carefully

Before signing on the dotted line, read through your policy carefully and make sure you understand all the details. Ask questions if there’s anything you don’t understand or if something seems unclear.

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