Permanent life insurance is meant to last your whole life, as long as you keep paying. Many permanent policies also build cash value you can borrow against or withdraw.
Part of each premium goes into an account called cash value. It grows at a fixed or changing rate. Some policies tie growth to an index, like the S&P 500.
Cash value takes years to build. If you take money out early, you may pay a surrender fee. If you take out more than you paid in, you may owe taxes.
Whole life lasts your whole life unless you cash it in or stop paying. Some whole life policies pay dividends. Dividends are not guaranteed.
Universal life lasts until a set age, often 95 or 100, as long as there is cash value. You can change your payments. But paying too little can make the policy lapse.
Permanent life costs more than term. That is because it has a savings part and covers you for longer. A loan from the cash value can lower what your family gets.
- Whole life
- Universal life
- Variable universal life
- Indexed universal life
More questions
Can I borrow from my policy?
Yes, if it has cash value. Any loan you do not pay back lowers the death benefit.
What happens to the cash value when I die?
With many policies, the cash value stays with the insurance company. Your family gets the death benefit.
Should I get advice first?
The Texas Department of Insurance suggests talking to a financial adviser before you buy permanent life insurance.
Words to know
- Cash value
- The savings part of a permanent policy. It grows over time and can be used for loans, cash, or to pay premiums.
- Dividend
- Money a company may pay back when it collects more than it needs. You only get dividends with a participating policy, and they are not guaranteed.
- Lapse
- When your policy ends because you did not pay the premium in time. Your beneficiaries will not get the death benefit.
- Premium
- The amount you pay an insurance company for your policy.
- Universal life
- Permanent life insurance with flexible premiums and a cash value. If the cash value runs out, the policy can lapse.
- Whole life
- Permanent insurance that lasts your whole life as long as you pay. Premiums, death benefit, and cash value are guaranteed.
