Key Takeaways
  • Permanent life insurance refers to coverage that never expires (unlike term life insurance).
  • Most permanent life insurance combines a death benefit with a savings component.
  • Whole life and universal life insurance are two primary types of permanent life insurance.
  • Life insurance policies enjoy favorable tax treatment.
  • Permanent life insurance policies have much higher premiums than term life insurance policies, which lack a savings component.
Permanent life insurance provides coverage for the full lifetime of the insured person. While permanent life is more expensive than term insurance, permanent policies combine a death benefit with a savings component that earns interest on a tax-deferred basis.
The two primary types of permanent life insurance are whole life and universal life. The cash value of whole life insurance grows at a guaranteed rate. Universal life insurance also contains savings and a death benefit, but it features more flexible premium options and its earnings are based on market interest rates. Variable life and variable universal life also provide expanded options to invest the cash value in mutual funds and other financial instruments.
Once you've picked the policy that's right for you, remember to thoroughly research the firms you're considering to ensure you'll get the best life insurance available.

Understanding Permanent Life Insurance

While term life insurance only promises to cover you for a certain period of years, permanent life insurance lasts your lifetime (hence, the name) as long as the policy owner pays the premiums.

Permanent life insurance premiums cover the cost of the policy’s death benefit and allow the policy to build cash value. The policy owner can borrow funds against that cash value through a policy loan or withdraw cash outright to help meet needs such medical expenses or a child’s college education. 
 
An insurer charges interest on an outstanding cash value loan. If the total unpaid interest on a policy loan plus the outstanding loan balance exceeds the amount of a policy’s cash value, the insurance policy and all coverage will terminate.
 
gettyimages-1887469182-612x612Permanent life insurance policies enjoy favorable tax treatment. Cash value generally grows on a tax-deferred basis, which means the policyholder pays no taxes on earnings as long as the money stays in the policy. Some money can also be withdrawn from the policy without taxation. Generally, withdrawals up to the total of premiums paid are not taxed. Taking cash value out of a permanent policy through a withdrawal or outstanding loan will reduce the future death benefit for heirs.

What Is Better

Term or Permanent Life Insurance?

Both term and permanent life insurance can help you protect your loved ones financially. You should buy the one that offers premiums you can afford. Permanent life lasts longer and has a cash value component, but its premiums are usually much higher than term life insurance.

Can You Cash Out Permanent Life Insurance?

Yes, you can cash out permanent life insurance after it has been in force for several years. You can take out a loan against your policy, withdraw money from the cash value, or surrender the policy. If you do the latter, you may be forced to pay surrender fees and taxes on your withdrawal.

The Bottom Line

Permanent life insurance pays out a guaranteed benefit upon the insured's death. Most policies contain a cash value savings component that earns interest and grows tax-free while the coverage remains in force. You can also withdraw or borrow against the cash value while alive. However, premiums for permanent life coverage are significantly higher than those for term insurance.
 

Types of Permanent Insurance 

Disclaimer: Aviso Insurance Inc. offers financial planning, life insurance and investments to members of credit unions and their communities.  Your insurance contract will provide details of the coverage available under the plan you choose.  Restrictions may apply.

The information contained on this website was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is provided as a general source of information and should not be considered personal advice.  Please speak to your Aviso Insurance Representative or personal financial representative before making any financial planning decision or implementing any strategy.

SOURCE: https://www.investopedia.com