What is permanent life insurance?
Permanent life insurance is a type of life insurance policy that offers lifelong coverage, as long as you continue to pay premiums to keep your policy active.
Permanent life insurance policies are more expensive than other types of life insurance because they offer a permanent death benefit, as well as a cash value component that acts as a tax-deferred savings vehicle.
There are many different subtypes of permanent life insurance, so it’s best to speak to a licensed insurance agent or financial advisor before choosing a policy.
How does permanent life insurance work?
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 include a tax-deferred cash value account. When you pay a premium, a portion goes toward the cost of maintaining the policy and administrative fees, and a portion goes toward the cash value. The cash value earns interest over time, though the rate will depend on your specific policy type and insurance company.
What’s the difference between permanent life insurance & term life insurance?
Unlike permanent life insurance, term life insurance only lasts for a set period — usually 10 to 30 years — and then expires
Term life is one of the most affordable life insurance coverage options on the market and comes with few rules and tax restrictions. It’s best used to provide a financial safety net for your loved ones while they depend on your income.
Permanent life insurance is much more expensive than term life because it doesn’t have an expiration date and it often has a cash value component. Because it’s significantly more expensive, most people don’t use permanent life insurance if their main motivation is finding an affordable policy to protect their family in a worst-case scenario.
Learn more about term life vs. permanent life insurance
Pros & 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: Many types of permanent life insurance offer 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) plan.
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 risk leaving your family without coverage and losing the money you already paid toward premiums.
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 risk depleting the death benefit you’ll leave to your beneficiaries if you can’t pay the money back.
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.
Types of permanent life insurance
The main types of permanent life insurance listed below vary by how the cash value grows, and in some cases, how much coverage you can purchase.
Whole life insurance is the most popular type of permanent life insurance. Cash value accrues interest at a fixed rate over time. Whole life also comes with level premiums, meaning you’ll pay the same amount month over month.
Universal life insurance, also called adjustable life insurance, allows you to make changes to both your premiums and death benefit. You can eventually use your cash value to pay your premiums, if you choose.
Variable life insurance has a cash value that grows based on investments in mutual funds offered by your life insurance company. There’s no guaranteed minimum cash value, so you’ll take on much more investment risk.
Joint life insurance covers two people and is most often bought by married couples with specific estate planning needs. Joint life insurance can refer to first-to-die policies and second-to-die policies, also called survivorship life insurance.
Final expense life insurance is a common type of permanent policy meant to cover end-of-life expenses, like a funeral. These policies come with relatively high premiums for smaller coverage amounts. Simplified issue and guaranteed issue life insurance are two examples of final expense policies.
Learn more about the differences between whole and term life insurance
Other types of permanent 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 types of life insurance you can purchase to get lifelong coverage.
Variable universal life insurance (VUL) combines universal and variable policy features: Your cash value is invested in a fund of your choosing, and your premiums and death benefit can fluctuate.
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.
Learn more about the differences between IUL and whole life insurance
Comparing permanent life insurance policies
Coverage type | Premiums | Guaranteed death benefit | Guaranteed minimum cash value | Cash value growth |
Whole life | Fixed | Yes | Yes | Fixed rate |
Universal life | Flexible | Yes | Yes | Depends on the policy |
Variable life | Fixed | Yes | No | Tied to investment growth |
Joint life | Fixed | Yes | Depends on the policy | Depends on the policy |
Final expense | Fixed | Yes, may be a graded death benefit | Yes | Fixed rate |
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. For instance, A 30-year-old could pay $415 to $487 per month for a $500,000 whole life insurance policy that’s paid up at age 100.
You can choose to pay whole life insurance premiums up to a certain age (usually 65, 100, or 121 years old), or over 10 or 20 years. Making payments for a shorter period translates to higher premiums and vice versa.
Whole life insurance rates by age
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1 million coverage amount |
20 | Female | $147.50 | $290.00 | $558.50 |
Male | $175.50 | $347.00 | $670.50 | |
30 | Female | $209.50 | $414.50 | $814.00 |
Male | $245.50 | $487.00 | $954.50 | |
40 | Female | $305.00 | $605.50 | $1,195.00 |
Male | $371.00 | $737.00 | $1,433.50 | |
50 | Female | $480.50 | $957.00 | $1,899.00 |
Male | $569.50 | $1,134.50 | $2,222.00 | |
60 | Female | $800.50 | $1,597.00 | $3,179.50 |
Male | $957.00 | $1,909.50 | $3,769.00 |
Methodology: Whole life insurance rates are calculated for male and female non-smokers in a Preferred health classification obtaining a $250,000, $500,000, or $1,000,000 whole life insurance policy fully paid up at age 100 offered through MassMutual. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 01/01/2024.
The cost of other types of permanent policies differ more based on your policy features. For example:
Universal and variable universal life insurance don’t have set rates because the policies allow you to adjust your premiums within a lower and upper limit.
Final expense insurance can be costly for low coverage amounts, but has fewer health requirements to apply. A 50-year-old could pay between $52 and $100 per month for a final expense policy with a $25,000 payout, depending on the specifics of their policy.
Below are sample rates for guaranteed issue final expense life insurance.
Final expense insurance rates by age
Age | Gender | $10,000 coverage amount | $25,000 coverage amount |
50 | Female | $30.39 | $74.47 |
Male | $40.18 | $98.96 | |
60 | Female | $42.68 | $105.21 |
Male | $56.88 | $140.69 | |
70 | Female | $63.87 | $158.29 |
Male | $86.67 | $215.16 | |
80 | Female | $126.85 | $315.62 |
Male | $157.04 | $391.09 |
Methodology: Average monthly rates are calculated for males and females obtaining a $10,000 or $25,000 guaranteed issue whole life insurance policy. Life insurance rates are based on policies offered by policycentral from Mutual of Omaha. Rates may vary by insurer, policy type, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 01/01/2024.
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:
People who have maximized contributions to 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
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 policycentral broker can work with you to determine what the best policy is for your individual circumstance.
