Permanent Life Insurance

What are the main types of permanent life insurance?

Term generally costs less and covers a set period. Permanent coverage is built for longer needs. Our term versus whole life comparison explains that tradeoff.

• Whole life: Typically a set premium schedule, plus guaranteed cash value. Participating policies may pay dividends, but those aren't guaranteed.
• Universal life: Flexible premiums, provided you fund the policy adequately. Check its maturity date, when coverage is scheduled to end.
• Indexed universal life: IUL credits interest using a market index formula. Returns are often capped, and policies offer a guaranteed minimum interest rate. You don't own index shares. IUL generally isn't a security.
• Variable universal life: VUL combines flexible premiums with investments you choose. You bear the investment risk, and cash value can fall. It's sold as a security.

See how whole life works for more on its guarantees.

How does cash value work?

Cash value comes from premiums after insurance costs and fees. Growth depends on the policy's guarantees, interest credits or investments. There may be little or no cash value in the early years.

• Borrowing: Loans carry interest. Unpaid balances reduce the death benefit and the amount available when you surrender.
• Withdrawing: Taking money out reduces the cash value left. Early withdrawals can trigger charges. Taking the entire value might cancel the policy.
• Surrendering: You give up coverage for the available cash value, less applicable charges and outstanding loans.

Cash value generally grows without current tax. Withdrawals above premiums paid may be taxable. Loans generally aren't taxable when taken, but a lapse with an outstanding loan can create a tax bill. Check with a tax professional before accessing the money.

What does permanent insurance cost, and can it lapse?

Premiums are higher than term because you're funding longer coverage and cash value. Insurance costs depend on factors including age, health and death benefit size. Ongoing fees and early surrender charges also affect what you keep.

With universal, indexed or variable coverage, cash value pays costs that premiums don't cover. Weak interest credits, investment losses or rising charges can exhaust it. A lapse ends coverage, leaving no death benefit.

Some universal policies offer a no-lapse guarantee that keeps coverage active despite insufficient cash value if you meet its requirements, including timely premiums. An agent's cash value chart is usually a projection, not a promise. Ask which values are guaranteed.

Who should consider permanent life insurance?

It can fit a lifelong protection need or estate planning goal if you can sustain the funding. Variable coverage also requires willingness to accept investment losses.

If your need ends, term may fit better. If saving for retirement is your main goal, compare other financial products before buying insurance. Our IUL and workplace retirement comparison explores that decision.

What should you ask before buying?

Start with the protection your family needs and payments you can maintain. Ask the seller:

• What's the highest premium needed to keep coverage?
• Which premiums, benefits and values aren't guaranteed?
• How long do surrender charges last?
• How are you paid, and how can I verify your licensing?
• Can I see projected versus paid dividends or actual cash value history?
• What's the free look period for returning the policy for a full refund?

Verify insurance licensing with your state insurance department. If indexed coverage still fits, compare indexed universal life quotes and review guarantees and charges alongside premiums.