Permanent life insurance refers to any type of insurance that does not have a set expiration date. Unlike term life insurance, which typically expires after a few years, a permanent policy covers you until death or another covered event, as long as you keep up with your premium payments.
If you have a permanent life insurance policy, your beneficiaries will receive a payout from your life insurance policy no matter when you die. Permanent life insurance offers a guaranteed payout but is more expensive than term life insurance
There are several types of permanent life insurance including whole life insurance and universal life insurance.
- Whole life insurance is a type of permanent life insurance that has a death benefit and a cash value. A cash value is a tax-deferred savings account that functions like an investment. Every month part of your premium payment will go towards this cash value account which accrues interest at a fixed rate.
The cash value portion of a whole life insurance policy can be thought of as a forced savings plan. It can be useful for financial planning if you have long term, complicated expenses, such as an endowment or an estate.
You can withdraw the cash value to pay for expenses and borrow loans but unlike the death benefit, the cash value disappears if you do not make use of it while you are alive.
Whole life insurance premiums are much higher than term life insurance rates. For this reason, many people who purchase whole life insurance end up surrounding their policy early.
- Universal life insurance is very similar to whole life insurance in that it has a cash value. However unlike whole life insurance, the interest rates for the cash value portion of universal health insurance changes according to market interest rates.
If you can afford to pay higher premium payments, and you would like to prioritize investing and financial planning above frugality, a permanent life insurance plan may be the right fit for you.