Permanent Life Insurance

Permanent life insurance is an umbrella term for non-expiring life insurance policies. Whole life and universal life are the two main types of permanent life insurance, and most permanent life insurance combines a death benefit with a savings portion. Whole life insurance provides coverage for the insured's entire life, and its savings can grow at a guaranteed rate.

Universal life insurance, like term life insurance, includes a savings component in addition to a death benefit, but it has different premium structures and earns based on market performance.

Once you've decided on the best policy for you, make sure to thoroughly research the companies you're considering to ensure you get the best life insurance available.

Understanding Permanent Life Insurance

Unlike term life insurance, which guarantees the payment of a specified death benefit for a set number of years, permanent life insurance lasts the insured's entire life (hence the name), unless the policy is lapsed due to nonpayment of premiums.

Permanent life insurance premiums support both the policy's death benefit and the policy's ability to accumulate cash value. The policy owner can borrow against the cash value or, in some cases, withdraw cash from it outright to help meet needs such as paying for a child's college education or medical expenses.

After purchasing a permanent life insurance policy, there is frequently a waiting period during which borrowing against the savings portion is not permitted. This allows enough money to accumulate in the fund. If the total unpaid interest on a loan, plus the outstanding loan balance, exceeds the cash value of the policy, the policy and all coverage will be canceled.

Permanent life insurance policies are tax-advantaged. The cash value grows tax-deferred, which means that the policyholder pays no taxes on any earnings as long as the policy is active. Money can be taken out of the policy without paying taxes as long as certain premium limits are met, because policy loans are typically not considered taxable income. Withdrawals up to the total amount of premiums paid are generally tax-free.

Permanent Life Insurance vs. Term Life Insurance

Different people require different types of insurance at different stages of their lives. Term life insurance is popular because of its low premiums, but it usually expires well before the policyholder's life.

While the goal is to have paid off most debt and other financial obligations by that time, while also saving enough to make a large amount of life insurance unnecessary, some people may find that they'd prefer ongoing coverage and savings opportunities and may want to purchase a new permanent policy.

As a result, many term life insurance policies include the option to convert to permanent policies later, often without the need to retake medical exams or otherwise qualify. A feature like this could make the conversion appealing for someone who has medical issues that would make a new policy prohibitively expensive, or who has chronic conditions that necessitate ongoing expenses from the savings portion.

While the premiums for permanent life insurance are much higher than those for term insurance, those who would purchase such policies have earned enough money by that point in their lives to afford them. With the additional savings opportunity, they can also use it as a tax-advantaged investment vehicle to cover the needs of lifelong dependents or for estate planning.

Advantages and Disadvantages of Permanent Life Insurance

Buying permanent life insurance has advantages and disadvantages. Permanent life insurance, if you can afford the higher premiums, allows you to provide a death benefit to your beneficiaries without the constraints of term life insurance. A permanent life insurance policy allows you to invest in a tax-advantaged account that you can borrow from or use during the policy's term.

The disadvantages of purchasing a permanent life insurance policy are the high premium costs, the risk of not being able to keep up with payments, and spending down the cash policy so much that the death benefit is reduced.

What Is Permanent Policy Life Insurance?

Permanent life insurance is a type of life insurance policy that, unlike term life insurance, does not expire until the policyholder dies. It typically includes a cash value savings component.

What Are the Four Types of Permanent Life Insurance?

Permanent life insurance policies are classified into four types: universal life, whole life, variable universal life, and variable life.

What Is Better Life Insurance, Term, or Permanent?

Both term and permanent life insurance can help you financially protect your loved ones. The type you purchase should be one for which you can afford to pay a premium. Permanent life insurance is more expensive than term life insurance because it lasts longer and has a cash value component.

Can You Cash Out Permanent Life Insurance?

Yes, you can cash out permanent life insurance by borrowing against it, withdrawing money from its cash value, or surrendering the policy. If you do the latter, you may be required to pay withdrawal fees and taxes.

How Long Does Permanent Life Insurance Last?

A permanent life insurance policy will last your entire life if you pay your premiums and do not let it lapse or surrender.