Should You Get Permanent Life Insurance?

Permanent life insurance can provide death benefits for your family and financial returns, but it’s also expensive. Is it right for you?

Written by Erin Gobler / May 17, 2022

Quick Bites

  • Permanent life insurance combines the death benefit protection you’d expect from a regular life insurance policy with a cash value component that grows over time—think of it as a savings account of sorts.
  • There are several different types of permanent life insurance, including whole life, universal life, variable life and variable universal life.
  • Permanent life insurance is expensive because it lasts your entire lifetime (or at least as long as you pay the premium) and provides financial returns.
  • This insurance can be an excellent choice for some people, but isn’t right for everyone because of its high costs and relatively low returns.

When it comes to financial planning, life insurance tends to be one of the more complicated products to assess. Not only are there several types of life insurance to choose from, but even within those categories, there seem to be a lot of options. It’s natural to be overwhelmed when facing your options.

If you’re thinking of getting permanent life insurance, you’ll want to consider the different types that are available, what you get with each, and the costs involved before you decide.

Inside this article

  1. What's permanent life insurance?
  2. Permanent life insurance types
  3. Cost of permanent life insurance
  4. Permanent vs. term life
  5. Should you get it?

What is permanent life insurance?

Permanent life insurance is a type of insurance policy that combines a death benefit with an investment component. What makes it permanent is that it never expires.

Permanent life insurance offers the same type of coverage you’d expect of any life insurance policy. In exchange for paying your premiums, the insurance company will provide a financial payment to your beneficiaries when you die.

In addition to the death benefit, permanent life insurance also includes a cash value component, or a kind of savings account. A portion of your premium will go toward an investment that can grow over time.

You can borrow against your cash value, or withdraw it entirely. This cash value can serve as an emergency fund of sorts or help cover large expenses like a college education.

Types of permanent life insurance

There are a few different types of permanent life insurance.

Whole life insurance

Whole life insurance is the simplest and most common type of permanent life insurance. With this type of policy, you have a set premium that you’ll pay each month for the rest of your life. You will get a guaranteed rate of return on your cash values, and you may also get dividends from the insurance company, which you can reinvest, cash or use to reduce your premiums.

Universal life insurance

Universal life insurance is similar to whole life, but with more flexibility. With this type of policy, you can adjust both your premiums and your death benefit, as long as you pay enough each month to cover your death benefit protection.

Unlike with whole life insurance, there’s no fixed rate of return on a universal life insurance investment. Instead, your cash value will grow based on the current money market interest rate, though there’s usually a minimum rate to which it can fall, meaning your losses will be limited.

Variable life insurance

Variable life insurance policies offer fixed premiums, and you can choose how your premiums are invested from a list of options provided by your insurance company.

The better your investments perform, the more money builds up in your cash value. However, the worse your investments perform, the less you’ll have for a death benefit. The good news is that there’s usually a minimum death benefit that your insurance company will guarantee.

Variable universal life insurance

Variable universal life insurance is similar to a standard variable life policy, but with a few differences. First, like a universal life insurance policy, this type of policy has flexible premiums. As long as you pay the minimum amount each month, you’ll maintain your policy.

Variable universal life allows you to choose your own investments, and their performance determines your death benefit. The downside of this type of policy is there’s no minimum guaranteed death benefit unless you pay an additional fee.

Cost of permanent life insurance

The high cost of permanent life insurance can be off-putting.

Prices vary based on the exact type you choose, but to give you an idea, a whole life insurance policy with a death benefit of $500,000 costs between $346 per month for a 25-year-old female to $1,380 per month for a 55-year-old male.[1]

Age is an important factor when it comes to life insurance, and older individuals seen as having a greater risk of dying sooner get charged more. Gender also plays a role: Because women have longer lifespans, they tend to pay less.

Another important factor is health. Many life insurance companies require that you undergo a medical exam when you sign up. If you’re in poor health, you’re likely to pay a higher premium, while someone in good health is likely to get the best rates for their age range.[2]

“Other lifestyle issues that impact the cost, and even the ability to get permanent life insurance at all, include high-risk jobs or hobbies like car racing, surfing, or scuba diving,” says Mark Lauria, an independent insurance agent with World Insurance. “High-risk activities will increase the cost of the policy and may require a waiver that states that the insurance company does not have to pay out if the policyholder dies while engaging in the high-risk activity.”

Permanent vs. term life insurance

When choosing life insurance, you will first have to decide between permanent and term policies.

As we’ve mentioned, permanent life insurance lasts a lifetime, as long as premiums are paid. Term life insurance is valid for a fixed term, generally between 10 and 30 years. It also provides only the death benefit component, and no cash value.

Because of the limited time frame and the fact that there’s no cash value component, term life insurance tends to be much cheaper. In fact, the $500,000 death benefit that would cost nearly $350 per month for a 25-year-old with a whole life insurance policy might cost less than $30 per month for the same person with a 20-year term life policy.[3]

“For example, two people could have paid the same amount in premiums, but the one who purchased a permanent life insurance policy would only have $100,000 in death benefits, while the person who bought term life insurance could have $500,000 in death benefits because term life insurance usually offers higher death benefits,” Lauria says.

People like that term life insurance is more affordable, but it’s also important to remember that it’s temporary. Once your policy expires, you’ll have to sign up for a new one if you still want coverage. At that point, you’ll be older, meaning you’ll be charged a higher rate and may have to undergo a new medical exam.

“As the cost of the policy is affected by your age, health, and other considerations, the cost of purchasing another term life insurance policy increases as you age. To mitigate that, some term life insurance policies can be converted to permanent life insurance,” Lauria says.

Should you get permanent life insurance?

You may still find yourself wondering whether permanent life insurance is right for you. There are clearly some advantages to this type of policy, including the lifetime coverage and the investment component.

“Permanent life insurance is great for people who can afford it and don’t want to worry about qualifying for life insurance ten years down the road when they may have health issues,” Lauria says.

On the other hand, not everyone needs life insurance coverage for their entire lives, and term life insurance often provides coverage long enough to get someone through the years they do need coverage.

“If you only need a lot of insurance coverage for a specific period of time and have a limited budget—which is the case for many parents of young children who have a mortgage and are concerned about college tuition costs—then term life insurance can be the better choice,” Lauria said.

The other thing to consider with permanent life insurance is whether the investment component is really worth it.

According to Consumer Reports, the average annual guaranteed return on a whole life insurance policy is only 1.5%.[4] Meanwhile, historically, the stock market sees an average annual return of about 10%, according to the Securities and Exchange Commission.[5]

So while the investment component can be useful to serve a specific purpose, such as helping high earners to defer taxes on investment growth, it may not be an appropriate substitute for another investment account.

Ultimately, whether permanent life insurance is right for you comes down to your specific situation. Take a close look at your needs and the options, and check in with a financial planner if necessary.

Article Sources
  1. Policygenius. “Understanding whole life insurance quotes & rates.” .https://www.policygenius.com/life-insurance/whole-life-insurance-rates/.
  2. Fidelity Life. “8 factors that affect life insurance premiums.” https://fidelitylife.com/learn-and-plan/insights/factors-that-affect-life-insurance-premiums/.
  3. Policygenius. “Term life insurance rates: Average costs for policies lasting 10, 20, and 30 years.” https://www.policygenius.com/life-insurance/term-life-insurance-rates/.
  4. Consumer Reports. “Is whole life insurance right for you?” https://www.consumerreports.org/cro/news/2015/04/is-whole-life-insurance-right-for-you/index.htm.
  5. U.S. Securities and Exchange Commission. “Saving and Investing.” https://www.sec.gov/investor/pubs/sec-guide-to-savings-and-investing.pdf.

About the Author

Erin Gobler

Erin Gobler

Erin is a personal finance expert and journalist who has been writing online for nearly a decade. Erin’s work has appeared in major financial publications, including Fox Business, Time, Credit Karma, and more.

Full bio

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