Permanent life insurance is often seen as a more expensive alternative to term life insurance. But what many people don’t realize is that it can act as an investment tool as well as financial protection when you die. Therefore, the overall cost of permanent life insurance can be more beneficial than term because you grow cash accumulation in the long term.
In this guide, we’re finding out the cost of permanent life insurance so you can decide if it’s the right coverage for you:
Paid the cost to be the boss
Sometimes things can seem more expensive than they really are. That’s because you need to look at the overall picture when making a purchase or investing money. Something that initially comes across as cheaper might seem like a good deal at the time but turns out to be the complete opposite.
Term life insurance is a bit like that. A term policy is typically the cheapest form of life insurance, but it can end up feeling more costly. Permanent life insurance, however, is more expensive upfront but comes with long-term financial benefits.
Permanent vs. term coverage
Term
If you were to look at the prices of term and permanent life insurance policies side by side without any context, then it would be a no-brainer. Term life insurance has cheaper policies than permanent. Therefore, your monthly outgoings will be cheaper with term coverage.
That doesn’t tell the whole story, however. Context is needed when you measure the two. Term insurance covers you for a specific term (the giveaway is in the name, right?), which is usually between 10, 20, and 30 years.
That’s it, though. There are no benefits once your coverage finishes unless you die and your loved ones get a death benefit, though that’s not really something to celebrate. And if you want to renew, you’ll pay for a new policy based on your current age, which means the cost of your premium goes up.
There are no bells and whistles with a term policy. Just coverage for a set amount of time, and then it’s finished.
Permanent
Permanent life insurance, on the other hand, has plenty of bells and lots of whistles. Yes, the premium is initially more expensive, but you’re locked in from the minute you sign up–and it lasts for as long as you keep paying into the policy. That means that you will still be paying the same premium 10, 20, or 30 years down the line.
On top of that, your coverage is accumulating a cash value. When you make payments into your policy, part of each payment goes into a savings vehicle called “cash value". This accrues over time and can be accessed tax-free when you’d like to use it.
How does that work, you ask? The cash grows on top of the original coverage amount purchased, so your death benefit is growing alongside the cash value. Even if you took out all of the cash accumulated, you’d still have a healthy death benefit that would be passed onto your beneficiaries after you die.
Types of permanent life insurance
Before we get into the specifics of costs, it’s important to know that permanent life insurance comes with more than one option. There are typically three types of coverage that you can get.
Whole life insurance
A whole life policy offers fixed-rate coverage and is the most basic type of permanent life insurance. It comes with a death benefit, as well as a cash value that grows over time that’s dependent on the premium paid in.
Universal life insurance
If you’re looking for a cheaper perm policy, then a universal index may be for you. It’s a policy offering a type of permanent life insurance with a savings arm for its cash value. That means you can pay more than the premium due, which will go into a savings account that is gross tax-free. You also have a stop payment option should you wish to freeze the payment if you fall on hard times. Premiums on a universal life insurance plan are offered at a fixed rate or variable.
Indexed universal life insurance
Ok, this is where things get a bit more complicated. An indexed universal policy (otherwise known as IUL) allows you to allocate cash value amounts to either a fixed account or an equity index account, such as an S&P 500. IULs offer tax-free cash accumulation for retirement while providing a death benefit. They also have a cap on both ends of the index. So, let’s say the stock market drops, the majority of IUL policies won’t allow the index fund to go into negative as it caps it at zero percent. But if the stock does the opposite and rises by, let’s say, 30 percent, your policy will be capped at a specific number.
Ride with me
There are also life insurance riders that can change the cost of permanent life insurance. A rider is a policy extra that improves the policy but comes with an added cost. These can include:
- Accelerated death benefit
- Accidental death benefit
- Critical illness rider
- Guaranteed insurability rider
- Long-term care rider
- Waiver of premium rider
The cost of permanent life insurance ultimately comes down to the type of cover you get, plus any riders you add to the coverage. Therefore, calculating the exact price isn’t easy, as it varies considerably.
What is the cost of permanent life insurance?
We’ve arrived at the big question, but asking the cost of permanent life insurance is a bit like determining the length of a piece of string. Calculating the cost of permanent life insurance isn’t easy because there are so many variables that go into it. Age, health, type of policy, and coverage amount all play a role.
For example, a 30-year-old person getting $50,000 worth of coverage can expect to pay considerably less than a person in their late forties taking out a policy. There is also a discrepancy in sexes, as women tend to pay lower rates than men because they aren’t as high of a risk.
Essentially, it comes down to the variables when you’re getting a permanent life insurance policy. A healthy young female is going to pay more than an unhealthy older male. That’s pretty much how it is with any policy, be it permanent, term, or health insurance.
So if you’re thinking of getting a permanent life insurance policy, it’s worth having an understanding of everything insurers take into account:
- Age
- Gender
- Your general health
- If you’re a smoker
- Lifestyle
- Family medical history
- Occupation and hobbies
- Policy benefit amount
- Medical exam results
Let’s say you’re a 30-year-old female who is in good health, doesn’t smoke, and decides to take out whole life insurance for $150,000. In that scenario, you can expect to pay an average of $100 per month or $1,200 per year. Of course, these are just averages, and the best way to get an estimate is by using the widget below or getting a quote here.
In conclusion: the cost of permanent life insurance
Many variables go into the cost of permanent life insurance, but it’s important to remember that it offers so much more than just a death benefit. With a permanent policy, you can build cash value over time and access it while you’re still alive. Essentially, you’ve got all angles covered financially, both in life and in death.