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What is permanent life insurance?
When shopping for life insurance, you have a variety of options to choose from, including permanent life insurance. Permanent life insurance is a type of policy without a set end date and is therefore intended to last your entire lifetime. When you purchase your policy, the coverage will never expire as long as you keep paying your premiums. Permanent life insurance is a broader category that includes different policy types, including whole life insurance and universal life insurance. Whole life insurance offers set premiums, meaning the amount you pay for your premium will never change over the life of the policy and also has a cash value component that grows over time at a fixed interest rate. Universal life insurance also offers a cash value element but has different types of premium structures and earnings based on market performance.Because of the cash value element, permanent life insurance can be a valuable asset for long-term financial planning. In fact, some permanent life insurance policies can even be used as a tool to supplement retirement income. These policies are called Life Insurance Retirement Plans (LIRPs) and can provide regular income after you retire.While understanding the complexities of permanent life insurance can seem overwhelming, SelectQuote is here to help. In just minutes, we can find and compare quotes from some of the most trusted life insurance insurance companies, helping you find the policy that best meets your needs and budget.
The Basics of Permanent Life Insurance
As the name suggests, permanent life insurance is designed to last your entire life. The policy stays active as long as the premiums are paid. Permanent life insurance premiums go toward both maintaining the policy’s death benefit and allowing the policy to build cash value.
Understanding the Cash Value of Permanent Life Insurance
Permanent life insurance policies are sometimes referred to as cash value life insurance policies because the policy builds a cash value alongside maintaining the death benefit. You can typically borrow funds from the total cash value of your policy to help support other financial needs, such as a child’s college education or covering medical expenses.This cash value savings capability means premiums for permanent life insurance are often higher than term life insurance policies. That being said, your premium on your permanent policy will remain unchanged over the policy’s lifetime.
Types of Permanent Life Insurance
There are two main types of permanent life insurance: whole life insurance and universal life insurance. Read on to learn more about the structure and benefits of these policy types.
Lifetime Coverage: Whole life insurance provides coverage for a lifetime.Set Premium: The premium you pay for the first month is what you’ll pay for every month the policy is active.Cash Value: As your premiums accrue, and at a time specified by the insurance company, you can borrow against your whole life policy’s cash value.
Lifetime Coverage: Much like whole life insurance, universal life insurance provides coverage for a lifetime.Flexible Premium: Universal life insurance policies are typically more flexible than other types of life insurance. Although premiums tend to be high, you get to determine what premium you pay between the minimum and maximum set amount and can adjust your death benefit based on cash value.
What You Need To Know About Permanent Life Insurance
While permanent life insurance can be a great fit for many people, it’s important to consider the pros and cons before choosing this policy type. Here are some of the advantages and disadvantages to think about when deciding whether permanent life insurance is right for you.
Key Advantages of Permanent Life Insurance
Lasts a Lifetime: One policy lasts your entire life. No worries about having to convert to another policy when a term runs out.
Cash Resource: Accrues a cash value that grows at a specified rate each time you pay a premium. You may be able to borrow against that cash value tax-free (or cancel it for part or all of the cash value) once it reaches a certain amount (with interest).
No Cost Surprises: The premium set at the purchase of the policy stays the same for the rest of your life.
Pre-planned Inheritance: Pays a death benefit to one or more beneficiaries that you choose. Family, friends, business partners, charities—it’s up to you. The benefit paid to all beneficiaries is tax-free.
Good for Estate and Retirement Planning: Because you can’t outlive a permanent policy, permanent life insurance is more suitable than term life insurance for estate and retirement planning. Additionally, the cash value grows tax-deferred, like retirement account gains. In some cases, you may even borrow against or withdraw the cash value of your life insurance policy to supplement income during retirement. This money can be used in many ways, from providing income without impacting your tax bracket to covering costs for dependents who will require lifelong care.Learn More
Potential Disadvantages of Permanent Life Insurance
Higher Premiums: Because permanent policies provide a lifetime of coverage and generate cash value, the premiums are higher than they would be for term life insurance. The cost might not fit your budget or cause you to buy less life insurance coverage than you need.
Risk-to-Value Ratio: Economic conditions can adversely impact the value of a permanent life insurance policy because the cash value growth is impacted by the market. Your cash value could be reduced over time, or you may need to reduce the death benefit at some point.
Complexity: There’s a complex relationship between how premiums are set and cash values are determined, among other things that dictate the design of a permanent life insurance policy. Purchasing such a policy generally requires more research, planning, and professional help to avoid surprises later on.
Loan Default Penalty: If you borrow against your policy but pass away before the loan is paid back, that amount will be deducted from the benefit paid to your beneficiaries.
Do I need permanent life insurance?
While term life insurance policies tend to be sufficient for most people, permanent life insurance policies can make sense for those with complex financial needs, including:
- High-income earners who are seeking an additional vehicle for tax-deferred savings
- Individuals with special needs children or other lifelong dependents
- High net-worth individuals who are looking to build an inheritance for their family
- Seniors who have outlived their term life insurance coverage and are still interested in substantial coverage
- People whose family history indicates they may develop a chronic condition in the future (such as cancer or heart disease) that could make becoming insured challenging.
What alternatives are there to permanent life insurance?
The primary alternative to a permanent life insurance policy is term life insurance. Unlike permanent life insurance, term life insurance policies are designed to last for a specific period of time. Term plans can be appealing not only for their flexibility but also their affordability, as they are typically less expensive than permanent life insurance.
What are the best permanent life insurance companies?
There are a number of highly rated insurance companies that offer permanent life insurance, and SelectQuote works with some of the most trusted carriers. Learn more about the insurance companies we work with.
Why are permanent life insurance rates higher than term life insurance policies?
With permanent life insurance, your premiums never change, and coverage lasts your entire lifetime. The rate you pay in the beginning is what you’ll pay every month for life. When you buy permanent life insurance, the insurance company sets a premium based on your age and other factors at the time you purchase your policy, but it also takes into consideration that you will age considerably during the life of the policy (which lasts your entire lifetime as long as premiums are paid) and that the older you are, the greater the risk that you will pass away. The higher starting premium helps the insurance company mitigate that risk.This is one of the main reasons permanent life insurance can be up to 10 times more expensive than term life insurance.
Learn More About Permanent Life Insurance with SelectQuote
If you’re wondering if permanent life insurance is right for you, let us help. We’ll take the time to learn about your specific priorities so we can guide you to the policy that works best for you. And, in just minutes, we’ll search and gather unbiased quotes from trusted insurance carriers to help ensure you’re getting the right rate for your needs and budget. At SelectQuote, we work for you, not the insurance companies.
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