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There are many reasons why people buy permanent life insurance. One reason is because the death benefit creates an inheritance for loved ones or can be used to cover final expenses.

While permanent life insurance has various benefits, it also has some drawbacks. For example, permanent life insurance generally costs more than term life insurance.

What is permanent life insurance? How much is permanent life insurance? In this guide, we’ll dive deeper into permanent life insurance to answer these and other common questions. 

KEY TAKEAWAYS
  • Permanent life insurance stays in place for life, starting when your policy takes effect until you pass away.
  • Most permanent life insurance policies have a cash value account that can be borrowed from or withdrawn.
  • Common types of permanent life insurance include whole life insurance, universal life insurance, indexed universal life insurance and final expense insurance.
  • Get multiple quotes for permanent life insurance, as the premium can vary significantly based on your insurance company. 

How much is permanent life insurance?

The cost of permanent life insurance depends on several factors, including your gender, health, age, the type of policy and the coverage amount. Here’s a sample premium comparison chart from AAA for a whole life insurance policy.

These premiums are for $30,000 in whole life coverage at standard, non-nicotine rates.

AgeMaleFemale
35$47.42$43.55
45$64.34$59.38
55$91.43$81.35
65$141.68$121.96

As you can see, whole life insurance premiums are higher if you buy a policy when you’re older. That’s because an insurance company bases premiums on life expectancy.

A 20-year-old will likely pay premiums for many more years than a 50-year-old before the insurance company has to pay a claim. In addition, men usually pay more for life insurance because men have a shorter life expectancy than women. 

Term vs. permanent life insurance

There are two types of life insurance: term life insurance and permanent life insurance. Both policies provide a guaranteed death benefit to your loved ones after you pass away. However, these policies differ in a number of ways.

Term life insurance provides temporary coverage, usually for a period of 10 to 30 years. If you pass away during the term, your beneficiary receives the payout. If you outlive the term, your coverage typically expires (unless the policy is convertible). Permanent life insurance, on the other hand, covers you for your lifetime and pays out whenever you pass away.

Another difference between term vs. permanent life insurance is that permanent policies generate cash value. With each premium payment, a portion of the money goes toward cash value, which is like a savings account. You can borrow or withdraw the money like a loan, and the funds can be used for any purpose.

In addition, term life insurance is cheaper than permanent life insurance from the outset, but term premiums may increase with age. However, when choosing between term and permanent life insurance, it’s important to consider your family's needs, not just the cost.

Most people think first and foremost about price and affordability when deciding between term life and permanent life policies, but there are more important considerations like understandability, suitability and sustainability. Do you understand the products you are considering? Are they the right fit for you? And will you be able to continue to pay for them or fund them?" said Spencer Barclay, founder and CEO at Saveology.

In the table below, you can see how the two types of life insurance compare:

Term lifePermanent life
Length of timeLimited: Commonly 5 to 30 yearsLasts your whole life
PremiumsOften less expensive than permanent lifeUsually more expensive
Cash valueNo cash valueAccumulates cash value that you can access while you're alive if needed
Conversion optionTerm life policies can often be converted to a permanent life policy when the term endsYou can't convert from permanent life to term life

Types of permanent life insurance

There are multiple types of permanent life insurance. The main differences are the cost and how the policy’s cash value grows. Here are the most common forms of permanent coverage:

  • Whole life insurance provides a guaranteed benefit, a guaranteed earnings rate on your cash value and a consistent premium. Some whole life policies can also earn dividends based on the company’s financial performance. Whole life is the most basic permanent life insurance and has little risk.
  • Universal life insurance is a flexible plan that lets you adjust the premiums using cash value. Many policies also allow you to change the death benefit. However, one risk with universal life is your policy could lapse if you don't have enough cash value or if interest rates drop. Newer types of universal life insurance often have guarantees to ensure that this doesn't happen. 
  • Variable life insurance ties your policy to an investment. The performance of the investment directly impacts your death benefit. Variable life is one of the riskiest forms of permanent life insurance.
  • Variable universal life insurance is a hybrid of variable life and universal life insurance. It allows you to adjust your premiums and death benefit and invest your policy premiums. Variable universal life insurance provides flexibility, but it can also be risky, depending on the investments you choose. 
  • Final expense insurance provides a small amount of coverage for people who want to help their loved ones pay for their end-of-life expenses. Most final expense insurance policies are available without a medical exam and provide up to $50,000 in coverage. The premiums are fixed and the death benefit is guaranteed. In most cases, these policies also build cash value.

Cash value

One perk of permanent life insurance is that it can double as a savings account by generating cash value. With each premium payment, some of the money goes toward cash value, which grows based on a predetermined interest rate. You have the option to borrow or withdraw the money while you’re still living, but there are conditions. 

For instance, imagine that you need major surgery and need to pay a medical bill. You could withdraw some of your cash value to pay it off.

However, be aware of the limitations around borrowing or withdrawing cash value. When you borrow the money, the insurance company is essentially giving you a loan. You must pay the money back with interest. 

Another thing to know about cash value is that your beneficiary usually does not get to keep the money after you pass away. If you don’t use the cash value from your policy while you’re still living, the money goes back to the insurance company.

How to convert from a term life policy to a permanent life plan

Many term life policies can be converted to a permanent policy when the initial term ends. Plus, you don’t need to take another medical exam, even if your health has changed since purchasing the term life policy. 

Depending on your life insurance company, you may have to start the conversion process before your initial term ends or before you reach a certain age. For instance, you might have to switch to permanent life insurance before you turn 65, otherwise, you lose the ability to convert the policy.

Converting a term life policy can be a good way to keep your coverage in force and lock in coverage for the rest of your life. However, keep in mind that permanent life insurance premiums are based on age. So, you’ll pay higher premiums if you convert the policy when you’re 65 than if you convert the policy at 45.

Find out more about why converting to a permanent life insurance plan may work for you.

How to buy permanent life insurance

To start the process of buying permanent life insurance, shop around and get quotes from a few different insurers. The cost of permanent life insurance is different for each individual, but insurance companies also set their own rates.

Unlike term life insurance, many permanent life insurance policies can’t be purchased online. Depending on the insurance company, you may need to contact an agent to get a quote and apply for a policy.

Some policies require a medical exam. This usually involves a general physical and blood draw.

There’s usually a waiting period of a few weeks to a month while the underwriter reviews your application and the results of your exam. Once you’re approved and you pay the first premium, your coverage takes effect. 

Sources:

  1. Reasons to purchase permanent life insurance
  2. AAA life insurance
  3. Provisional Life Expectancy Estimates for January through June, 2020

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