The Ultimate Guide to Permanent Life Insurance

Clifford PendellWritten by Clifford Pendell
Louis LopesReviewed by Louis Lopes, CLU ChFC
retired couple walking along beach at sunset

We’re going to let you in on a little secret – there’s no such thing as permanent life insurance.

There are, however, life insurance options that will protect you until you pass away.

We’re sure you’ve heard about term life insurance before, but what exactly is permanent life insurance?

How does it differ from term, and what are the different types of permanent life insurance policies?

This insider's guide will tell you everything you need to know about permanent life insurance including which situations it is best suited for, sample rates by age and gender, pros and cons, FAQ, and more.

Quick Article Guide

Here’s what we'll cover in this post:

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What is Permanent Life Insurance?

There are two major types of life insurance – term and permanent.

Term life insurance is a temporary form of life insurance that protects you for a certain number of years (the term), such as 10, 15, 20, 25, or 30 years. Since most people outlive their term policies, the premiums are much lower than permanent life insurance premiums.

Permanent life insurance is any type of coverage that is designed to be in effect when you pass away. These include:

Many permanent life insurance policies have something known as cash value. Each month, a portion of the premium you pay goes to cash value accumulation, which accumulates on a tax-deferred basis. You are typically allowed to borrow from your cash value if necessary, though it is not advised.

Types of Permanent Life Insurance

Let's explore each of the main types of permanent life insurance a bit more in depth. These are brief overviews. You can learn more about each type of permanent policy by clicking the links in the list above.

 Whole Life Insurance

Whole life insurance is the most basic type of permanent coverage. It offers cash value accumulation at a steady, guaranteed rate, usually around 3-8% annually.

 Universal Life Insurance

Universal life insurance is a lower cost alternative to traditional permanent life insurance policies. Typically they come with a flexible premium option or a one time payment option which allows policyholders to accumulate the most for their premiums while keeping them low.

 Variable Life Insurance

Variable life insurance is a type of permanent policy that allows you to have flexibility with premiums throughout the life of your policy. Depending on how you vary your payments, your cash value accumulation will vary as well. You can also elect to use your cash value to pay for premiums in the event that you cannot afford them.

With this type of policy, as long as you maintain a positive cash value or pay your premiums, you will not lose coverage.

 Indexed Universal Life Insurance

Indexed universal life insurance is a type of policy that allows you to invest your premiums in specific index funds in the market in order to accumulate cash value.

Guaranteed Universal Life Insurance

Guaranteed universal life insurance is probably the most affordable type of permanent life insurance because it allows you to get guaranteed low premiums throughout the life of your policy, along with guaranteed no-lapse coverage.

This provides permanent coverage with no cash value accumulation, which lowers rates significantly, but of course, is not appealing to someone who is focused on using their permanent policy to accumulate cash value.

Who is Permanent Life Insurance Best For?

Overall, permanent life insurance is best for people who are looking to use life insurance in a very specific way, in order to:

Let’s explore these use cases a bit more in-depth:

1. Estate Planning with Permanent Life Insurance

Federal estate taxes are very high and eat away at your gross estate. More importantly, they are required to be paid in cash with nine months from your date of passing.

Most of the time the personal assets are actually used to cover that tax debt but with a permanent life insurance policy, you can protect against those high estate taxes and plan for those costs.

Proceeds from your life insurance policy are typically income tax-free for your beneficiaries which means they can be used to pay any estate taxes and still preserve your assets.

2. Establishing a Life Insurance Trust

Much like using life insurance in order to plan an estate, you can also use it to form very strong trusts which preserve your assets and protect them once you have passed.

Often times this is used by people as a way to transfer large assets like real estate, businesses, and land to their beneficiaries in a way that is designed to be unbreakable.

3. Leaving a Legacy

You might decide that you want to leave behind a legacy. Perhaps you have a business that you're leaving to one child but you want to leave something to another. Your permanent life insurance policy could be what you leave to the other child.

Of course, it doesn't have to be left to a family member. You can choose to leave a legacy behind by naming an institution organization as your beneficiary, such as a non-profit institution that you want to support in your death.

You can also purchase children's life insurance policies for children and grandchildren, which can mature and grow cash value over time. This is a great way to leave a gift that keeps giving and that will keep your relatives financially safe in their young adult lives.

4. Paying Off Debts

If you know that you will be leaving behind debt no matter what, a permanent policy is the best way to ensure that your family does not inherit your debt when you pass. Things like:

  • Mortgages
  • Car Payments
  • Credit Card Debt
  • Business Loans
  • Etc…
All need to be settled once you die. If you do not have a financial instrument in place that helps with this, your family can inherit your debt, or assets that you wanted to pass down to them may be foreclosed on and seized to settle your debt.

Permanent life insurance can be used to settle debts remaining once you pass. So can term life, but most of these policies do not last past age 75.

5. Keeping Your Business Alive When You Die

Permanent policies also function as a safety net for your business if another employee suddenly passed away. Key person life insurance policies are a great way to cover founders, executives, and other key people to your business’ success.

If someone like this were to pass away, it would be difficult and costly to find someone with a skill set similar to theirs. You can use permanent life insurance policies on yourself in order to help cover financial losses and find the right executive in the event of your debt.

Permanent life insurance policies can also be used to fund buy-sell agreements. In which case, if you were to pass away, a previously funded life insurance policy could payout the value of your existing shares, and then specifically be used by your business partner to purchase back your portion of the company.

This type of policy can also be used as an additional form of compensation for your top-performing employees. Businesses can purchase split dollar life insurance policies on behalf of their employees, paying the premiums, while the employee owns the policy and can use the cash value from the policy later in life to supplement their retirement income.

There are dozens of ways that businesses can use permanent life insurance, these are just a few of the main ones. If you are looking to learn more about life insurance for business owners, check out these helpful resources we’ve made:


6. Providing for Your Spouse or Dependents

You can provide for your spouse or your dependents long-term with a permanent policy. If you are the main breadwinner and you provide for the family, having a permanent policy will guarantee that your spouse and your dependents are able to maintain the same standard of living in the event of your death.

A permanent policy can be used to:

  • Fund College
  • Payoff Mortgage Debt
  • Plan for Spouse Retirement
  • Take Care of Special Needs Children
  • Provide for Spouse Long Term Care
  • Insure the Children
  • Etc…
Depending on your needs and your price range, different types of permanent life insurance coverage may be best for you.

For instance, some people may want to enjoy steady cash value growth without the worry of their money performing bad in low market years. Whole life insurance may be best for them.

Others may be looking to be able to change their rates and accumulation over time, maximizing their growth in early years. A variable life insurance policy may be best for them.

Some people may be looking to have control over the different investment vehicles used to grow their cash value account. In this case, universal variable life insurance may be best.

Note: It is important to note that term life insurance is a great solution for handling all of these needs, and it is much more affordable. If you are looking for a permanent policy strictly to provide for dependents, we only recommend this if you have a spouse or child who will always need coverage, regardless of what age they are. Otherwise, term may be the best option.

How Much Does Permanent Life Insurance Cost?

The cost of permanent life insurance is influenced by the following factors:

  • Age
  • Company
  • Policy
  • Policy Type
  • Health
  • Coverage Amount
Other factors come into play, but these are the main contributing factors to price. In the tables below, we outline some permanent life insurance rates for males at certain ages and health classifications in order to give you an idea of how expensive permanent life insurance is.

$250,000 - Excellent Health - Guaranteed to Age 100

AgeFemaleMale
30$79.79$94.25
35$98.00$109.50
40$117.50$128.25
45$130.25$155.50
50$165.00$193.75
55$212.50$247.50
60$278.75$317.50
65$371.25$430.25

$250,000 - Pre-Existing Conditions - Guaranteed to Age 100

AgeFemaleMale
30$96.50$111.75
35$112.75$130.75
40$135.25$157.00
45$152.50$191.25
50$202.50$238.00
55$244.75$305.50
60$319.25$395.00
65$423.75$508.25

$250,000 Senior Rates - Preferred Health - To Age 100

AgeFemaleMale
50$183.00$214.50
55$229.00$265.25
60$286.50$337.25
65$380.50$445.00
70$533.00$616.00
75$781.50$920.00

*Displayed monthly rates are accurate as of 02/08/24 and are provided for illustrative purposes only. 

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Pros & Cons of Permanent Life Insurance

The table below briefly examines some of the pros and cons of permanent life insurance. We go into more depth about the pros and cons below the table.

Pros

Cons

Cash Value AccumulationMore Expensive
More Payment Options Not Convertible to Term
Can Loan Against Cash Value Tax-FreeCan Lose Coverage from Missed Premiums
Many Uses for Asset PreservationWorse than Term in Most Cases
Other Tax Benefits Not So Permanent Death Benefits

Advantages of Permanent Life Insurance

1. Cash Value Accumulation

You can take the cash value and watch it grow with time, therefore adding more value to your death benefit and hedging against inflation, making your total death benefit worth more than it would be.

2. More Payment Options

Some permanent policies allow you to set up a limited pay feature whereby you pay higher premiums for a shorter span but once you pay all those premiums, you never have to pay any more.

So instead of paying premiums until the day you die, you could set it up such that you pay higher premiums over the next 10 years at which point you never have to pay a premium again.

3. Take Out Loan Against Cash Value

As your cash value grows you can take it out in the form of a policy loan or simply withdraw the cash value to supplement your retirement income. Any loans you take out against your cash value is considered income tax free.

4. Asset Preservation

As we discussed earlier, through trusts, estates, buy-sell agreements, and other types of contracts, you can use permanent life insurance to preserve assets and hand them down in the event of your death.

5. Other Tax Benefits

Tax benefits including tax-free death benefit that you can give to your beneficiaries, a tax-deferred cash value growth that you don't have to pay on, income tax-free dividends, tax-free policy loans, and tax-free withdrawals.

Disadvantages of Permanent Life Insurance

1. Very Expensive

Price is the biggest downside here. This is significantly more expensive than any other type of policy at the onset.

Most people do not have the need for coverage that lasts beyond a certain point in time. You can easily secure long term life insurance policies which are renewable at affordable rates, or convertible to permanent coverage over time.

2. Not Convertible Into Term

Longevity is not necessarily a positive attribute. In some situations, you might decide that you no longer need a policy but you've been paying into it for years and now you're stuck with it.

3. Can Lose Coverage from Missed Payments

If you cannot pay your premiums anymore, your coverage can still be cancelled at which point you'll have to take out a new policy once you can afford it effectively starting all over.

4. Rarely Better than Term

Believe it or not, unless you have a net worth over $2 million, and assets to worry about, you are probably better off getting a term life insurance policy. With the exception of business owners.

Even for these people, they still may be better off using term coverage for all of their personal coverage needs, and then using permanent coverage for the smaller buy-sell agreement.

Even in cases where people argue that they can afford permanent life insurance and like the cash value accumulation, many money-savvy investors could arguably make a better return on their investment by using the “buy term invest the difference” mentality.

In this case, people take the savings between policy rates and invest it elsewhere in the market for higher returns than cash value accumulation.

5. Not as “Permanent” as You May Think

As we said in the beginning of this article, you may be shocked to learn that permanent life insurance policies are not so permanent after all. In fact, most of them expire at either age 100, 110, or 121. While this is longer than the average life expectancy by a few decades, it is still not permanent.

Permanent Life Insurance FAQs

Let’s take a look at some of the most frequently asked questions about permanent life insurance.

Q. How Does Permanent Life Insurance Work?

Like other form of life insurance, permanent life insurance requires periodic payments on a monthly, annual, or one-time basis. When the insured dies, the policy pays the death benefit as a lump-sum. The main differences with this permanent life insurance vs. term policies are that they last until age 100, 110, or 121, and permanet policies can build a cash value overtime. Depending on the way cash value is accumulated, the policy type differs. This cash value can be borrowed against to supplement your income, and is added to the death benefit when the insured dies.

Q. Is Permanent Life Insurance A Good Investment?

Permanent life insurance can be a good investment if you use it soundly. Many people are attracted to the cash value option and this can work well as long as you are careful not to decimate your total death benefit by taking out loans your family has to pay back via the death benefit, or take out too much of your cash value and lose most of it to taxes. However, for the average person, permanent life insurance is not the best option. These policies are typically geared towards asset protection and distribution for individuals with a high net worth. If you absolutely need permanent coverage through age 100 or beyond, but do not need it to protect or distribute assets, we recommend guaranteed universal life insurance. This type of policy offers low rates comparable to term coverage because it has no cash value component, but lasts as long as permanent policies.

Q. Is Universal Life Insurance Better Than Whole Life?

The answer depends on the individual and their life insurance needs. Guaranteed universal life insurance has fixed returns with flexible premiums, but no cash value (in most cases). Whole life insurance has guaranteed cash value, guaranteed death benefits, guaranteed level premiums for the rest of your life, and the potential for dividends that will grow based on the investment you have chosen. However, the cost of coverage is much higher.

Q. What Happens to Cash Value in a Whole Life Policy at Death?

If you have cash value in your whole life insurance policy at the time of your death, any outstanding loans that you owe against your life insurance policy will be taken out of the cash value. The remaining cash value will be paid out with your death benefit.

Q. Can I Withdraw Cash Value from Life Insurance?

If you have a permanent policy that has accumulated cash value, most insurance providers will allow you to withdraw up to 90% of your policy's cash value. However, it's important to understand that any cash withdrawals are subject to income tax. You can also use your cash value to pay your policy's premiums and avoid tax implications.

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JRC Insurance Group works with 63 of the best life insurance companies in the industry and we've helped thousands of clients and their family’s. Give us a call if you want to learn more about your life insurance options and work with one of our highly experienced independent life insurance agents.

Written by:

Clifford Pendell

Clifford Pendell

Managing Partner and Co-founder

Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.

Expert reviewed by:

Louis Lopes

Louis Lopes, CLU ChFC

Chartered Life Underwriter, Licensed Life and Health Agent

Louis has been in the insurance business for over 30 years. He specializes in “high risk” cases as well as more complex coverages for long term care, disability, and estate planning.

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