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What is permanent life insurance?
If you’re looking for lifetime protection and a host of flexible benefits, this article will explain how a permanent life insurance policy can give you and your loved ones the peace of mind you acquire from leaving a legacy.
Permanent life insurance gives policy owners lifetime protection—and more
Permanent life insurance is a category of life insurance products that are designed to give you a lifetime of protection and other long-term benefits. These products can be a solid choice for people who need more than 20 years of coverage or would like to make sure they can leave behind a financial legacy for their loved ones. Since these policies offer long-term protection, it’s important to work with a company that is financially strong and will be there for your beneficiaries when they need it. As one of the nation’s oldest and largest life insurance companies, New York Life has helped its clients and honored its commitments through the Great Depression, two World Wars, the Great Recession, and multiple pandemics.
It’s whole life insurance—and more
When most people think about permanent life insurance, whole life insurance is what they have in mind. That’s because, provided that premiums are paid when due, whole life is guaranteed to last the rest of your life—no matter how long you live.1 Other products in this category, such as universal life and variable universal life, also provide long-term coverage, but in most cases they are purchased by people who are willing to trade the lifetime guarantee for a bit more flexibility when it comes to benefits and pricing.
How is whole life different from universal life?
Whole life and universal life fall under the category of permanent life insurance because they both offer long-term protection and cash value accumulation. What makes these two products different, however, is the amount of flexibility offered.
Whole Life:
With whole life insurance, you know exactly what you are getting. As long as you continue to pay your premiums, your coverage is guaranteed to last the rest of your life. What’s more, your premiums are locked in at the time of purchase, and your cash value will continue to grow at a guaranteed rate.
Universal Life:
Universal life policies offer the potential for lifetime protection but come with a trade-off: greater flexibility for fewer guarantees. In many cases, you can adjust your death benefit as needed and use your accumulated cash value to help pay premiums. This coverage can be less expensive than whole life coverage, but the cost is harder to predict since the rate of growth is not guaranteed.
What are three types of permanent life insurance?[i]
Life insurance can help provide protection for you and your family. There are many options when deciding on a product that fits your needs. The following permanent life insurance policies are the most common, and they all offer some form of cash value accumulation. A New York Life agent can discuss them with you and help you determine which best meets your needs.
Whole life insurance:
Whole life is permanent life insurance, designed for the long term, with steady cash value growth. Whole life can be a versatile tool to help meet several needs. The death benefit provides cash to your beneficiaries when you pass away, plus you can access the cash value as your protection needs change while you’re alive. This is cash that can be used to help you fund a child’s college education, assist in a down payment for a home, supplement retirement income, or help pay for anything else you need. Of course, accessing the cash value of a whole life policy will reduce the available cash surrender value and the death benefit.
Universal life insurance:
Universal life offers a combination of long-term coverage and flexibility regarding the timing and the amount of premium payments, within limits. Some universal life policies accumulate cash value. However, because interest rate changes may affect your cash value accumulation, and consequently the premiums you need to pay, it’s important to monitor a universal life policy closely.
Variable universal life insurance2:
Variable universal life also provides the potential for lifetime insurance protection and offers flexible premiums. The main difference with this type of life insurance is that your premiums can be invested in variable portfolios whose underlying holdings may be stocks, bonds, or other investments. Therefore, the policy’s cash value will fluctuate, depending on investment performance. Loss of principal is possible.
What’s the difference between permanent life insurance and term life insurance?
Typically, permanent life products are designed to provide more than 20 years of protection, while term life policies give policy owners temporary life insurance coverage and have shorter durations (frequently one, 10, or 20 years). Unlike term products, permanent life insurance coverage lasts a lifetime if timely premium payments are made.
Not sure which coverage is right for you? This side-by-side comparison of features and benefits may help:
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20 years or more; no renewal needed. |
Often one, 10, or 20 years, with the possibility of renewal. |
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Initially higher; it will be based on your age and health at the time of purchase. |
Initially lower, but it increases each time you renew your coverage. |
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Guaranteed on whole life policies; available with others. |
Not available. |
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Available for whole life policies. |
Not available. |
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Guaranteed on whole life policies. |
Available until the policy renews. |
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In most cases. |
In most cases. |
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Available on all policies. |
Not available. |
What are the key benefits of permanent life insurance?
- Long-term coverage: If you want protection that’s built to last, permanent life insurance is the only way to go. That’s because term life insurance policies have a limited duration, whereas permanent life policies provide long-term protection that you and your loved ones can count on.
- Cash value accumulation: With permanent life insurance, you will have the opportunity to generate cash value—a resource that builds up over time and that you can access if there is a financial emergency; use it to help with major purchases, like buying a home; or use it to supplement retirement income.2
- Tax-advantaged growth: Since the cash value of a permanent life insurance policy grows tax-deferred, it may grow even faster than your money would in a non-tax-deferred vehicle. Even better, any loans or withdrawals3 you take are completely tax free, so this can be an efficient way to access money.4
How does cash value accumulate in a permanent life policy?
All permanent life polices have the ability to accumulate cash value. In some cases, this accumulation is guaranteed; in others, it is based on market growth or other economic factors. No matter which option you choose, the cash value of your policy grows tax-deferred, so it has the potential to build up faster than might otherwise be possible:
Whole Life: Cash value accumulation is guaranteed because interest rates are fixed. Certain policies may also have the potential to earn non-guaranteed dividends each year.
Universal Life: Cash value accumulation varies over time because interest rates fluctuate with market conditions.
Variable Universal Life: Cash value accumulation is based on the performance of the investment accounts you select and is subject to market risk.
Can you use your permanent life insurance policy while you’re alive?
All permanent life policies come with benefits, features, and riders that you can use throughout your lifetime. Some, may allow you to access some of the death benefit to help if you have a terminal illness (Certain riders are made available for an additional fee). Others, such as policy loans and withdrawals, let you use your available cash value to help pay for a child’s education, pay for an elderly relative’s care, or simply enjoy a higher quality of life in retirement. It’s completely up to you.3
Are there any downsides to owning permanent life insurance?
There are pros and cons to any life insurance policy, so it really depends on your needs. For example, if you need coverage for a limited time only—like until a child graduates from college or until your mortgage is retired—permanent life insurance may not be your most cost-effective option.
Find out which permanent life product is right for you
Since each permanent life product operates a little differently, we recommend working with a New York Life financial professional. Together, you can explore all of your options and see which one fits your needs and budget. If you want, a financial professional can also show you some ways to customize your coverage and can even provide some sample projections of how your cash value might perform.
Frequently asked questions
Whole life insurance is the only product New York Life offers that provides “permanent” coverage. By that we mean coverage that is guaranteed to last the rest your life—no matter how long you live. Other products, such as universal life and variable universal life, are often thought to provide “permanent” coverage, but they generally provide long-term coverage (usually more than 20 years).
If you plan to keep your coverage more than 20 years, permanent life insurance can be a great value. That’s because it offers the longest coverage with the most benefits—and a death benefit that will ultimately be paid to your loved ones.
Over the lifetime of a policy, premiums for permanent life insurance are likely to be less than the cost of having to renew term life insurance as you get older, because premiums for temporary insurance increase the older a person becomes.
If you have questions about permanent life insurance, or would like to compare it with other alternatives, please visit any of the articles below, or contact a New York Life financial professional.
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A New York Life financial professional can help determine what’s right for you.
1 The guarantees of a life insurance policy are backed by the claims-paying ability of the insurer. Guarantees do not apply to premiums allocated to the Investment options in a variable life policy which are subject to market volatility and fluctuate in value.
2 Offered through properly licensed Registered Representatives of NYLIFE Securities LLC (Member FINRA/SIPC), a Licensed Insurance Agency and a New York Life Company.
3 Loans against your policy accrue interest and decrease the death benefit and available cash surrender value by the amount of the outstanding loan and interest.
4 Certain tax advantages are no longer applicable to a life insurance policy if too much money is put into the policy during its first seven years, or during the seven-year period after a “material change” to the policy. If the cumulative premiums paid during the applicable seven-year period at any time exceed the limits imposed under the Internal Revenue Code, the policy becomes a “modified endowment contract,” or MEC. An MEC is still a life insurance policy, and death benefits continue to be tax free, but any time you take a withdrawal from an MEC (including a policy loan), the withdrawal is treated as taxable income to the extent that there is gain in the policy. In addition, if you are under 59½, a penalty tax of 10% could be assessed on those amounts and upon the surrender of the policy.
[i] New York Life Insurance Company (NY, NY)