Best Permanent Life Insurance: A Complete Guide (2024)
Not everyone realizes that there are four types of permanent life insurance. If you're looking for the best permanent life insurance, you should fully understand your options before you buy. We'll also review how to calculate your life insurance coverage, including multiplying your annual income by 10.
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Eric Stauffer
Licensed Insurance Agent
Eric Stauffer is an insurance agent and banker-turned-consumer advocate. His priority is educating individuals and families about the different types of insurance coverage. He is passionate about helping consumers find the best coverage for their budgets and personal needs. Eric is the CEO of C Street Media, a full-service marketing firm and the co-founder of ProperCents.com, a financial educat...
Licensed Insurance Agent
UPDATED: Dec 21, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.
UPDATED: Dec 21, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Unlike term life insurance coverage, which lasts a period of one to 30 years, permanent life insurance coverage lasts the policyholder’s entire life
- Whole life and universal life insurance are two main forms of permanent life insurance
- Permanent life insurance policies are more expensive than term life insurance policies due to the coverage period and cash component
When shopping for the best life insurance, you can choose between permanent and term life insurance. Term life insurance offers low-cost, short-term coverage and a guaranteed death benefit. Permanent life insurance offers lifelong coverage, a death benefit to your chosen beneficiary, and a cash value component. However, it is the more expensive life insurance option.
If permanent life insurance appeals to you, there’s more you need to know before you purchase a policy.
Our guide will further explain permanent life insurance and your available policy options to help you find the best permanent life insurance plan for you.
What is permanent life insurance?
Life insurance is a contract or agreement between the policyholder and the life insurance company. The policyholder pays a premium in exchange for a guaranteed death benefit to be paid to the designated life insurance beneficiary when the policyholder dies.
The two main forms of life insurance are term life and permanent life. Term life insurance is a short-term life insurance option that provides coverage for a term of one, five, 10, 15, 20, 25, or 30 years. How does term life insurance work? The policyholder chooses the death benefit to be paid to the beneficiary when they die, and they pay a fixed premium for the duration of the term. If they outlive the policy term, they can renew or convert to whole life, depending on the life insurance company.
Permanent life insurance offers policyholders long-term coverage that lasts the policyholder’s entire life rather than a term of one to 30 years. The two main forms of permanent life insurance are whole life and universal life, and both give the policyholders control over the death benefit amount and beneficiary.
Both of these permanent life insurance options have a cash value component, which deposits a portion of the premium into a savings account, where it builds value over time through interest and investments. This cash value allows policyholders to be borrowing against life insurance, withdraw the cash, or surrender the policy and receive a cash payout. It is also possible to add cash value to the death benefit.
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Understanding Permanent Life Insurance
As mentioned above, permanent life insurance has two main forms: whole life and universal life.
Whole life insurance offers lifelong coverage and will pay a fixed amount when the insured dies. The policy’s cash value grows over time at a set interest rate and may pay dividends. The death benefit and premium are not adjustable, and the beneficiary will not receive both the death benefit and cash value when you die.
You could use the cash value while you are alive to cover various expenses. However, using more than the amount you’ve paid in premiums will result in a smaller payout because the insurance company will subtract the difference from the death benefit.
Universal life insurance offers lifelong coverage, but the premium and death benefits are adjustable. The policy’s cash value grows at a fixed or market interest rate, and it can be used to pay the premium. However, this can decrease the death benefit. Depending on the policy and life insurance company, the beneficiary will receive the death benefit or the death benefit plus the cash value.
Two other forms of permanent life insurance include variable life and variable universal life.
Variable life insurance offers lifelong coverage, but the cash component works a bit differently with this type of policy. The cash value grows based on the investments of the policyholder’s choosing, so unlike whole and universal life, a return isn’t guaranteed.
What is variable universal life insurance? It’s a combination of variable life and universal life insurance. It offers lifelong coverage and a cash component, which grows based on the policyholder’s choice of investments. The death benefit and premium are adjustable.
How much does the best permanent life insurance cost?
Both whole life insurance and universal life insurance are more expensive than term life insurance, so if you need something low-cost, term life insurance may better align with your current budget.
Calculating Your Life Insurance Coverage Needs
Life insurance companies use different factors to calculate your premium, including the following:
- Gender
- Age
- Health
- Lifestyle
- Occupation
- Driving record
- Family medical history
- Credit score
- Type of insurance policy
- Amount of coverage
- Smoking status
It is never a good idea to choose a random coverage amount when purchasing life insurance.
You run the risk of purchasing too little or too much coverage. Because your coverage amount impacts your premium, it is best to do some calculations to determine how much coverage you need.
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How do I calculate how much life insurance coverage I need?
Below are different ways to calculate your life insurance coverage amount:
Multiply Your Annual Income by 10
This calculation considers how much you would need to replace your income for up to 10 years. For example, if you make $75,000 annually, multiply that amount by 10, and your coverage amount will be $750,000.
Multiply Annual Income by 10 and Add $100,000 per Child
This calculation tells you how much you need to replace your income for up to 10 years and cover college expenses for your children. For example, if you make $75,000 annually, multiply that amount by 10 and add $100,000 per child. If you have one child, $850,000 would be your total.
DIME Formula
DIME, which stands for debt, income, mortgage, and education, considers the four common financial obligations. To determine the coverage you need, combine your debts, funeral expenses, the amount needed to replace income, the amount of your remaining mortgage balance, and college education expenses for each child.
Not only will properly estimating the coverage you need ensure your financial obligations are covered, but it can also make your permanent life insurance costs more affordable if you only get the coverage you need.
Additionally, because there are several factors insurance companies consider when calculating premiums, your whole life insurance quotes will vary.
Permanent Life Insurance vs. Term Life Insurance
Your plan may be to purchase life insurance, but you have more than one option to choose from. Permanent and term life insurance have similarities and differences, so depending on your life insurance needs, one will be a better fit than the other.
Let’s take a look at the key differences between permanent vs. term life insurance.
Term life insurance includes the following:
- Short-term coverage lasting one to 30 years
- Guaranteed death benefit to cover financial obligations
- High coverage limit
- Fixed premium
- Convertible and renewable
Permanent life insurance includes the following:
- Flexible premium
- Adjustable death benefit
- Guaranteed death benefit to cover financial obligations
- Cash value
- Option to borrow against or withdraw from your policy
If you initially purchase term life insurance, depending on the life insurance company, converting to whole life when your policy expires may be an option. Typically, this can be done without the completion of a medical exam. Learn more about the reasons to choose term life insurance.
Advantages and Disadvantages of Permanent Life Insurance
Before deciding on life insurance, you need to carefully consider the disadvantages and advantages of permanent life insurance. Here are the advantages of permanent life insurance:
- Long-term coverage
- Builds cash value
- Adjustable premium and death benefit
- Option to borrow against or withdraw from your policy
- Option to combine cash value and death benefit depending on the policy
Here are the disadvantages of permanent life insurance:
- More expensive than term life insurance
- Borrowing against the policy can reduce the death benefit
- Age limit restricts individuals over a certain age from purchasing a policy
- Medical exams may be required
- Cannot be converted to term life
Despite its disadvantages, permanent life insurance may still be the better fit for you.
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What is a life insurance permanent policy?
Permanent life insurance is a life insurance policy that lasts the policyholder’s entire life.
What are the four types of permanent life insurance?
The four types of permanent life insurance policies are whole life, universal life, variable universal life, and variable life.
What is better life insurance, term or permanent?
Both term and permanent life insurance have their benefits, so you should consider your individual needs when determining which is better for you. If you want short-term coverage for an affordable price, term life insurance is a good option. However, if you want long-term coverage and building cash value, permanent life would be a better fit if you don’t mind the expense.
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Can you cash out permanent life insurance?
Yes, permanent life insurance can be cashed out. You can borrow against your policy, withdraw the money that has built up over time, or surrender the policy and receive the cash value, which may require you to pay taxes.
How long does permanent life insurance last?
Permanent life insurance lasts your entire life as long as the premiums are paid on time.
Best Permanent Life Insurance: The Bottom Line
Permanent life insurance isn’t a good fit for everyone. Lifelong coverage and building a cash value may be the appeal, but whole life insurance is expensive, and if you don’t pay your premium, you risk losing coverage. If you can’t afford a whole life insurance policy, consider purchasing a term life insurance policy and converting when your budget allows for more expensive coverage.
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Frequently Asked Questions
What’s the difference between term vs. permanent life insurance?
When comparing permanent vs. term life insurance, understand that permanent life insurance offers lifelong coverage and a cash value. Term life insurance offers coverage for a period of one, five, 10, 15, 20, 25, or 30 years and no cash value. If you outlive your policy term, you can renew at a higher rate or convert to whole life insurance.
What types of permanent life insurance can I buy?
Permanent life insurance options include the following:
- Whole life insurance
- Universal life insurance
- Variable life insurance
- Variable universal life insurance
Although each is considered permanent life insurance, there are differences to consider when choosing your policy type.
Is burial insurance a permanent life insurance policy?
Burial insurance, also known as final expense insurance, is a type of permanent life insurance policy that pays out a small death benefit to cover funeral expenses. Since the death benefit is low with this type of coverage, it’s not ideal if you want to leave your beneficiary money to cover other financial obligations, such as a mortgage.
What are the pros and cons of permanent life insurance?
The pros of permanent life insurance:
- Long-term coverage
- Builds cash value
- Adjustable premium and death benefit
- Option to borrow against or withdraw from your policy
- Option to combine cash value and death benefit depending on the policy
The cons of permanent life insurance:
- More expensive than term life insurance
- Borrowing against the policy can reduce the death benefit
- Age limit restricts individuals over a certain age from purchasing a policy
- Medical exams may be required
- Cannot be converted to term life
How much permanent life insurance coverage do I need?
The amount of permanent life insurance coverage you need will depend on your individual financial situation and goals. Factors to consider include your income, expenses, debts, and long-term financial needs such as retirement or education expenses.
How do I choose the best permanent life insurance policy?
When choosing a permanent life insurance policy, consider factors such as the policy’s premiums, death benefit, cash value growth potential, and any additional features or riders. It’s important to compare policies from multiple insurers and consult with a licensed insurance agent to determine the best option for your needs and budget.
How much does permanent life insurance cost?
The cost of permanent life insurance will vary depending on factors such as the insured’s age, health, and lifestyle habits, as well as the policy’s death benefit and cash value growth potential.
Premiums for permanent life insurance tend to be higher than those for term life insurance, but the added benefits of lifetime coverage and cash value growth can make it a worthwhile investment for some individuals.
Can I change my permanent life insurance policy if my needs or budget change?
Yes, many permanent life insurance policies offer options for adjusting the policy’s premiums, death benefit, and cash value growth potential over time. It’s important to review your policy regularly and consult with a licensed insurance agent to determine if any changes are necessary.
What happens if I stop paying premiums on my permanent life insurance policy?
If you stop paying premiums on your permanent life insurance policy, the policy may lapse and the coverage and cash value benefits will end. However, many permanent life insurance policies offer options such as reduced paid-up insurance or extended term insurance, which can provide some coverage even if premiums are not paid.
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Eric Stauffer
Licensed Insurance Agent
Eric Stauffer is an insurance agent and banker-turned-consumer advocate. His priority is educating individuals and families about the different types of insurance coverage. He is passionate about helping consumers find the best coverage for their budgets and personal needs. Eric is the CEO of C Street Media, a full-service marketing firm and the co-founder of ProperCents.com, a financial educat...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.