Permanent life insurance provides lifelong coverage. It’s more expensive than term life because it:
- Can last for the duration of your life.
- Usually builds cash value.
The cash value component accumulates on a tax-deferred basis over the life of the policy. It acts as a savings portion of the policy. Typically, you can borrow against the policy’s cash value or make a withdrawal. If you decide to end the policy, you can get the cash value minus any surrender charge.
In some policies the cash value may build slowly over many years, so don’t count on having access to a lot of cash value right away. Your policy illustration will show the projected cash value.
There are several varieties of permanent life insurance:
Whole life insurance offers a fixed death benefit and cash value component that grows at a guaranteed rate of return. Many whole life insurance policies pay out dividends that can be used to reduce premium payments or can add to your cash value.
Universal life insurance often offers more flexibility than a whole life insurance policy. You may be able to alter your premium payments and death benefit, within certain limits. With a universal life insurance policy, the cash value will build depending on the policy type. For example, an indexed universal life insurance policy will have cash value tied to an index such as the S&P 500. A variable universal life policy will typically have investment subaccounts that you can choose and manage.