Permanent Life Insurance

Unlike Term Life policies, Permanent Life policies have the option of lasting through your "whole life," which was one of the first types of permanent life insurance. Some permanent policies also combine the death benefit with a savings portion.

This savings portion can build a cash value that can be borrowed against or used toward life goals such as college costs or supplemental retirement income. The cash value can even be used to pay future premiums.

Many policies provide tax-free, zero-cost loans. In many states, the cash values inside of Permanent Life policies are safe from creditors, which provides vital asset protection to the insured/owner. Once issued, a permanent life policy never requires the insured to go through medical underwriting again.

Common Characteristics

All Permanent Life insurance policies share some common characteristics:

  • Additional exams never needed
  • Level benefits or increasing benefits available
  • Cash values grow tax-deferred inside the policy
  • Return of premiums or, if there is significant growth, can provide funds for education funding, retirement needs, or Long-Term Care benefits
  • Access to funds available via withdrawals and preferred loans (at 0 percent) without penalty or taxes
  • Funding can be structured as a pre-pay over a certain period or by age (for example, paid up at age 65) or for life. When there is cash value in the policy the premiums can be skipped and taken from cash value if/when needed

Types of Permanent Life Policies

There are several types of permanent life insurance policies:

Current Assumption Universal Life (CAUL) policies are based on conservative current assumptions of cost of insurance and current or assumed interest rates. They do not provide strong guarantees, which requires the carrier to reserve less, and are lower-cost policies for the carriers. This usually results in lower funding requirements to the insured and higher cash values than policies with strong guarantees.

Guaranteed Universal Life (GUL) policies usually provide the insured/owner with a guaranteed premium to keep the policy in force for a specific period. Many of these policies can last through age 121 (the rest of your life) guaranteed. These policies have higher reserve requirements for the carriers, are usually higher cost than CAULs and do not provide significant cash value accumulation to the insureds/owners. These feel more like permanent term policies for the insureds/owners.

Indexed Universal Life (IUL) policies are CAULs that pay interest based on a change in a stock index like the S&P 500 or NASDAQ 100. This allows a policyholder to be able to participate in market returns rather than a fixed interest rate provided by the carrier. These plans usually have a guaranteed low-interest rate of 0 percent to 2 percent and have the ability to have unlimited upside participation in the market.

Variable Universal Life (VUL) policies could offer up to 100 different mutual investment funds, ETFs or managed portfolios the policyholder could select as investment options for the cash values. The death benefit can be level or increasing based on the performance of the investments. Plans offer very flexible funding options from a very low minimum to a larger maximum based on IRS guidelines. This product is based more on projections than guarantees, but guarantees are available. The ability to fund can be insured with a waiver of premium rider.

Whole Life policies generally pay dividends set by the carrier on cash value. Whole life is based on a guaranteed benefit given guaranteed costs and dividends (versus Universal Life, which is based on projections of costs and interest rates). Whole Life policies are usually offered by mutual carriers, which are ones that are owned by their policyholders. Dividends are paid from profits of the carriers back to the policyholders. These carriers run their businesses for the benefit of policyholders versus for stockholders.

Which One is Right for Me?

Permanent policies can be created and priced to meet the different goals that an insured has:

  • Low-cost, longer-term protection
  • Pre-pay or short pay for long term – pay only for 5, 10, or 15 years for permanent protection
  • Refund of premium funding for various periods of time
  • Education funding

  • Additional retirement funding
  • Guaranteed to age 100 benefits
  • Funding of estate taxes
  • Asset transfer
  • Estate creation