Permanent Life Insurance: Definition, Pros and Cons

Permanent life insurance typically lasts your entire life and builds cash value, but it’s more expensive than term life.
Georgia Rose
By Georgia Rose 
Edited by Katia Iervasi

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When shopping for life insurance, you have a choice between two main types: term and permanent. Although term policies are sufficient for most people, permanent life insurance usually offers lifelong coverage and the opportunity to build cash value you can borrow against — making it suitable for some applicants.

What is permanent life insurance?

Permanent life insurance generally covers you for the rest of your life and pays out regardless of when you die — as long as you’ve kept up with premiums. These types of policies also include a cash value component that you can withdraw from or borrow against while you’re still alive. Depending on the policy, you may be able to adjust your premium payments and coverage amount to fit your needs.

Types of permanent life insurance

If you're shopping for life insurance and decide to buy a permanent life policy, there are many types to choose from. Your decision will depend on how much risk you’re comfortable with and how much flexibility you want.

Whole life insurance

Whole life insurance policies have fixed premiums and a cash value component that (slowly) accumulates.

Insurers may offer different payment schedules, such as paying premiums up to age 100, paying premiums for a fixed number of years (such as 10, 15 or 20 years while maintaining coverage after payments stop) and single-payment policies. When you die, your beneficiaries typically receive the face amount of the policy, not the face amount plus cash value. To take full advantage of your permanent policy, you may want to consider using the cash value during your lifetime. But if you withdraw or borrow more than the policy basis (the amount you’ve paid in premiums) without paying it back, the insurer will reduce the death benefit by the same amount.

Universal life insurance

The main draw of universal life insurance is that it allows you to adjust your premiums and death benefit, giving you flexibility as your financial circumstances change. You can also combine the cash value with the death benefit to increase the payout to your beneficiaries. Indexed universal life insurance is a specific type of universal life insurance that’s tied to a stock index, like the S&P 500. It offers similar flexibility in premiums and death benefits as universal life.

Variable life insurance

Variable life insurance offers policyholders the opportunity to put their cash value in investments of their choosing, which can make this type of coverage riskier than whole or universal life. You may have the option — similar to universal life — to include the cash value in the death benefit. Premiums are typically fixed, and returns on the cash value are not guaranteed.

Variable universal life insurance

What do you get when you mash together variable life and universal life? You get variable universal life, or VUL, a type of life insurance with a lot of moving parts. The policy’s underlying cash value is subject to the ups and downs of the investments you choose. You can adjust your premium payments and death benefit. However, this increased flexibility comes with risks. If your investment choices don’t pan out the way you’d hoped, you could end up owing money or even losing the coverage.

There are more specific types of permanent life such as survivorship policies, which are a form of family life insurance. These policies insure two lives at once — typically spouses — and pay out when the second person dies.

If you’re looking at permanent life insurance for retirement or investment goals, discuss it along with other options with a financial advisor before making a decision.

Permanent life insurance cost

The cost of permanent life insurance can vary significantly among policy types. Here are sample rates for whole life and universal life policies, compared with term life. As you can see, permanent life insurance premiums are often significantly higher.

Average annual rates for women

Age at purchase

20-year term life

Whole life

Universal life

30

$189

$4,015

$1,793

40

$283

$5,937

$2,645

50

$645

$9,443

$3,867

60

$1,666

$15,943

$6,423

Source: Quotacy. Lowest three rates for each age and policy type averaged. Based on $500,000 of coverage for applicants in excellent health. Rates valid as of Jan. 7, 2023.

Average annual rates for men

Age at purchase

20-year term life

Whole life

Universal life

30

$224

$4,652

$2,144

40

$335

$7,028

$3,098

50

$824

$11,163

$4,601

60

$2,361

$19,150

$7,662

Source: Quotacy. Lowest three rates for each age and policy type averaged. Based on $500,000 of coverage for applicants in excellent health. Rates valid as of Jan. 7, 2023.

Permanent life insurance pros and cons

Advantages of permanent life insurance

  • Coverage typically lasts your entire life.

  • You can tap into the policy’s cash value while you’re still alive.

  • Depending on the policy you choose, you might be able to combine the cash value growth with the death benefit, increasing the payout when you die.

Disadvantages of permanent life insurance

  • Permanent policies cost significantly more than term life policies.

  • Universal and variable policies require careful monitoring to ensure the cash value performs well and the policy stays in force, making them riskier than term life policies.

  • If you borrow from the cash value and don’t pay it back, the insurer typically reduces the death benefit by the same amount.

Is permanent life insurance worth it?

Longevity, cost and flexibility are just a few of the factors to consider when shopping for permanent life insurance. Permanent policies may be worth it for people who:

Permanent life insurance is typically more expensive than term life insurance because of the lifelong coverage and investment opportunities. And remember, certain policies require detailed investment attention, something you may not have the time or inclination to give.

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