Permanent Life Insurance

28% of the total life insurance market sold in 2019 was whole life
32% of the total life insurance market sold in 2019 was universal life
60% of life insurance purchased in 2019 were permanent policies

60%

of life insurance purchased is Permanent

What Is Permanent Life Insurance:

Permanent insurance is designed to last as long as you live and and can make a good supplement to term insurance. You will likely still want insurance after your term coverage ends, either for life-long or unplanned needs, or for needs with an unpredictable or extended end date. While the majority of consumers only consider permanent insurance “whole life,” there are actually many types of permanent insurance policies. They all can provide life insurance protection for your lifetime and typically have some ability to build cash value. How they build this cash value and how great their potential is for the amount they can build are key differences among them.

While the majority of consumers only consider permanent insurance “whole life,” there are actually many types of permanent insurance policies.

Here are the four major life insurance policy types purchased on an annual basis:

Whole Life Insurance Universal Life Insurance Indexed Universal Life Survivorship Life Insurance

This is the tried-and-true permanent life insurance that most people think of when they hear “permanent insurance.” Whole life insurance is typically the most expensive type of life insurance due to the guarantees that are included in the contract. The death benefit, cash value and premium are all typically guaranteed in a whole life insurance policy. Unlike other types of permanent life insurance, “participating” whole life insurance policies will provide a dividend payment as well. These dividend payments can be used to purchase additional life insurance, reduce premiums in later years or be used as supplemental retirement income.

Universal life insurance is a mix between term life and whole life insurance. The most attractive part of universal life is the low cost coupled with great flexibility. While there are guaranteed universal life insurance products available at a higher cost, the majority of universal life policies have minimal guarantees. The premium is flexible and can be structured to increase the guaranteed death benefit length, cash value accumulation within the contract, or simply pay off the premium at a faster rate. The cash value of a universal life insurance policy is typically tied to the insurance company’s general portfolio, earning a dictated interest rate from the insurance company based on market performance and interest rates.

Additional riders can be added to universal life insurance policies to cover a number of other needs. Long-term care, enhanced cash values, living benefits and waiver of premiums due to a disability are all examples of riders that are popular within a universal life insurance policy. This additional flexibility is what separates itself from “whole life.”

Survivorship life insurance, often called “Second-to-Die,” is a type of life insurance that is designed to cover two people (typically spouses) rather than only one. Therefore, it only pays a death benefit in the event that both individuals have died rather than only one. Due to the increased likelihood that a policy covering two people will remain in-force longer than a policy on one individual, the premium for a Surivorship plan is usually quite a bit less. This lower cost of insurance opens the door for spouses to maximize the excellent tax advantages of life insurance whether it be for supplementing retirement assets or preparing for estate taxes.

Type of Life Insurance:
Is the death benefit guaranteed?
Opportunity for cash value accumulation
Ranking of premium cost from most expensive to cheapest

Whole Life
Yes, for the full length of the contract.
Second best opportunity for cash accumulation
Most expensive due to the robust guarantees within the contract

Universal Life
Yes, but usually not for the whole policy.
Third best opportunity for cash accumulation
Lowest priced option for a permanent life insurance policy

Indexed Universal Life
Yes, but usually not for the whole policy.
Best opportunity for cash accumulation
Second most expensive due to increased cash accumulation

Term Life
No, only for the duration of the selected term.
There is no cash accumulation with a term life policy.
Cheapest option as the coverage only lasts a set number of years

Frequently Asked Questions:

Can’t I Just Buy Another Term Policy Later?

For most people, buying a series of term policies throughout their lives as their situation changes is not the best strategy. Life insurance usually gets more and more expensive as you age. So, once you pass a certain age, the cost can become prohibitive. Also, if you develop a health condition that increases the amount you have to pay for life insurance or makes you unable to qualify to buy life insurance (uninsurable), you would risk not having life insurance. For these reasons, a permanent policy can help to protect or “lock in” your ability to qualify for life insurance (insurability).

Should I Just "Buy Term And Invest The Difference"?

In this scenario, the difference between the permanent life insurance premium and the traditional term life insurance premium is invested in a mutual fund, annuity, stocks, bonds, or other investment vehicle. The idea is that investing the difference would replace or exceed the cash value accumulation of permanent life insurance. If you are deciding if this strategy is right for you, you need to consider what best suits your personal objectives and circumstances. For example:

You may not have the discipline to actually invest the difference.
You need the discipline not only to invest the difference, but also to invest early while the difference between the amount of your term insurance premium and the amount of the premium for your permanent insurance is the greatest. You need to make up early for the dramatic increase in the cost of term insurance at later ages.
If you need to renew or reapply for your term policy, the cost may become prohibitive as you get older or if you develop health problems.
If health problems occur, you could become uninsurable and not even be able to purchase term insurance when it comes time to renew.
The investment you choose may not perform as hoped for.

Carefully weigh knowledge about your habits and self discipline along with the benefits, risks, product features, and any current or future charges associated with any insurance and/or investment product before making a decision about how to address your particular needs.

Which Type of Permanent Policy Is Best?

As you can see, there are a number of permanent life insurance policies available. They all can provide life insurance protection for your lifetime and typically have some ability to build cash value. The guarantees that are included as well as how the policy builds cash value and how great their potential is for the amount they can build are key differences among them. This can drastically change the premium required, so it’s important to balance your goals for a permanent policy as well as your budget to determine which type of policy would be the best fit.

Are All Permanent Policies Guaranteed?

Not all permanent life insurance policies are guaranteed. There are typically guarantees included for at least a limited number of years, but “whole life” policies are typically the ones to offer the broadest guarantees for both the death benefit and cash value. This is also why they are the most expensive on the list.

How Does Life Insurance Build Cash Value?

Every type of permanent life insurance builds cash value a different way. Typically, the premium that you pay for the policy less the fee to maintain the protection will earn interest that can be used to purchase more insurance, offset your premium costs, or supplement your retirement. Dividends, index funds, individual stocks and declared interest rates from the insurance company can all be triggers to allow your life insurance policy to build cash value. It is important to talk with a licensed professional who understands all of the options that are available and then leverages those options with your risk tolerance and desire for cash accumulation.

What Is The Best Permanent Life Insurance To Supplement Retirement?

While life insurance companies are constantly introducing and enhancing products, it’s important to review all of your options before determining which policy would be the best fit for your personal retirement needs. With that being said, life insurance proceeds work very similarly to a Roth IRA. After tax proceeds are used to pay your premium, and then the interest that accumulates grows tax-deferred and comes out of the contract tax free. There are policies available that can participate in the performance of an index fund while protecting your losses in case there are negative years. Adding this type of policy can be a great strategy for any portfolio.

Should I Purchase Term and Permanent Life Insurance Together?

It is very common to utilize a strategy that we call “laddering” your life insurance. Laddering diversifies your life insurance portfolio by adding a portion of term life and permanent life insurance together. Let’s say that a husband feels he needs a total of $500,000 of life insurance coverage. If he has a child that will be through school in 10 years, it might be in his best interest to maintain a $400,000 term life insurance policy while there is a larger need while the child is in school, while also adding a $100,000 permanent life insurance policy. This would provide $500,000 of total protection, but would leave $100,000 after the initial 10 years is over. In this example, the client would be able to participate in a policy that grows cash value and provides permanent protection, but would keep costs down by placing the majority of the insurance in a term policy.

Permanent Life Insurance

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