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Permanent life insurance is exactly that — permanent. It lasts your entire life and becomes a cash asset over time, but it’s expensive and not the best investment for everyone.
Permanent life insurance offers lifelong coverage — as long as you keep up your premiums. It’s a life insurance policy and investment product rolled into one. It pays out a lump sum to your beneficiaries when you die, and has a savings component known as the cash value.
When you pay your monthly or annual premium, a portion will go towards the cash value of your policy. Think of this as a tax-deferred savings account. The amount of money that goes into this account varies by policy, and it earns interest over time.
Once you build up enough cash value, you can start to take out tax-free loans against your policy, or use the funds to pay for premiums, boost the death benefit or save for retirement.
All of these permanent policies last your entire life and accumulate cash value. But they vary in terms of how the cash value grows:
Whole life insurance | Variable life insurance | Universal life insurance | Variable universal life insurance | |
---|---|---|---|---|
Lifelong coverage | ![]() | ![]() | ![]() | ![]() |
Level premiums | ![]() | Flexible premiums | Flexible premiums | Flexible premiums |
Guaranteed death benefit | ![]() | ![]() | ![]() | ![]() |
Flexible death benefits and coverage amounts | ![]() | ![]() | ![]() | ![]() |
Guaranteed cash value | ![]() | ![]() | Protected from loss of returns, but cash value may be depleted to pay premiums | Cash value may be depleted to pay premiums |
How cash value grows | Earns interest at a fixed rate | Invested into various subaccounts | Tied to a stock index — like the S&P 500 — and earns interest based on current market rate | Invested into various subaccounts |
Tax-free withdrawals and loans | ![]() | ![]() | ![]() | ![]() |
For the average person, a term life insurance policy makes the most sense. But permanent life insurance might be the best option for those with complex financial needs, such as:
Permanent policies are a two-in-one product: They offer lifelong coverage and the opportunity to invest. While the forced savings vehicle works well for some people, this type of life insurance is expensive to maintain — and it isn’t always a sound investment.
Whether you’re in the market for a permanent policy or a simpler term life insurance policy, be sure to compare providers.
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