Although both term life insurance and permanent life policies have advantages, if you prefer permanent life here are key guidelines to help you choose the best option.
Guidelines for choosing permanent life
- All policies are not created alike. Whole Life insurance combines a fixed premium with a guaranteed cash value and a death benefit. Universal Life offers a flexible premium plan that works like a combined term life policy and savings account: you pay what you can and the funds you leave with the insurer earn a variable interest rate. Variable Universal Life is similar but lets you allocate cash value among investment options such as mutual funds.
- Because permanent life is written for a lifetime rather than a limited term, you will normally be required to take a medical exam; the better your health, the lower your premium.
- Permanent life can provide tax-advantaged accumulation. In many cases, policy loans against cash value are not immediately taxable, and withdrawals up to your basis in the policy are generally tax-free. The forced-savings aspect of permanent policies can help build a financial safety net.
- Check the reputation and financial stability of the insurance company, and review the historical performance and fees of any underlying investments if the policy has an investment component.
- You will usually pay more for permanent life than for the same death benefit in term insurance. Premiums depend on health, age, gender, and coverage amount, and permanent policies often include sales charges, administrative fees, mortality charges, and fund management fees; surrender charges may apply if you cash in the policy during an early period.
For an overview of available products and features, see Permanent Life Insurance.
To compare policy types and learn how to evaluate options in detail, review Permanent Life Insurance: Choosing the Right Policy.
Our life insurance professionals are ready to help you evaluate options and answer questions; if you want personalized assistance, talk to an agent.
Frequently Asked Questions
What is the main difference between whole life and universal life?
Whole life has fixed premiums and guaranteed cash value growth, while universal life offers flexible premiums and a cash value that earns a variable rate set by the insurer.
Are policy loans taxable?
Policy loans are generally not taxable while the policy remains in force, but large loans or policy lapses can create taxable events, so monitor loan balances and policy status.
Do I always need a medical exam to get permanent life insurance?
Most permanent policies require a medical exam, though some insurers offer simplified-issue or guaranteed-issue products with limited underwriting at higher cost.
When might term life be a better choice than permanent life?
Term life often costs less for the same death benefit and can be a better fit if you need coverage for a specific period, such as until a mortgage is paid off or children are grown.