What is Permanent Insurance?

Permanent Insurance Definition

A type of life insurance that remains in force until you die, as long as you continue to pay the premiums, rather than expiring when you reach a certain age. Permanent insurance and term insurance are the two main categories of life insurance. Whole life, universal life and term-to-100 are the most common types of permanent life insurance. Permanent life insurance consists of both a death benefit, like a term insurance policy, and a savings and investment component called a cash value, which a term policy does not have.

The investment component is tax sheltered, and both the death benefit and the cash value are not taxable to your beneficiaries. If your permanent insurance is a “participating” policy, you will receive dividends from the insurance company if it earns enough profit to share with policyholders.

Example

Because of its higher cost compared to term insurance, permanent insurance is best for people with special circumstances. Mrs. Laurie Hapenstance has an adult child who is permanently disabled and wants her to receive enough money to cover her care no matter how old her child is when Laurie dies. Term insurance won’t work in this situation, because Laurie wants a permanent policy that doesn’t expire.

Hannah (another ficticious person) purchases permanent insurance because she wants to insure a child who has a genetic predisposition for a major illness. If her child develops the illness later in life, he will never be able to purchase his own life insurance.

Whereas Jeremy (Our 3rd ficticous person in this example section) purchases a permanent life insurance policy because he has a large estate. He’s maxed out other tax-favored savings vehicles and wants to pass money tax-free to his heirs.

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Tips From First Foundation

Term life insurance policies typically do not extend beyond age 80, so if you want to provide a death benefit for your beneficiaries when you die, you may want to purchase permanent life insurance. However, many people have accumulated enough assets by the time a term policy expires that they no longer need life insurance to provide for their loved ones after their death.

Some permanent policies have level premiums. You’ll pay more than the policy really costs in the early years, and less than it really costs in later years. Premiums won’t increase as you age.

As with term insurance, permanent insurance policies are available in almost any amount, whether you need $25,000 or $10 million in coverage.

If you cancel your permanent policy before you die, you will receive its surrender value.

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Last updated Oct 29, 2018