A Complete Guide to the Types of Permanent Life Insurance
5 Types of Permanent Life Insurance Explained
The various types of permanent life insurance have different features and costs. Some are very complex. It’s understandable to be unsure which type is best for you.
Here we’ll explain the five most common permanent life insurance options.
Whole Life Insurance
A common misconception about whole life insurance is that it’s the same thing as permanent life insurance. In truth, whole life is just one of several types of permanent life insurance.
Whole life insurance is generally the most comprehensive and fully featured coverage option. This means that it typically has the highest premiums as well.
Because of this, life insurance advisors sometimes refer to whole life as the highest cost, highest reward path for permanent coverage.
Features of whole life policy:
Lifelong coverage
Fixed premiums
Guaranteed interest rate
Policy loan options
Dividend earnings (if participating)
Whole life is more of a set-it-and-forget-it permanent product. You’d only need to monitor your policy if you took out a policy loan and didn’t pay it back.
You aren’t required to pay back the policy loan while alive, but it does accrue interest. Your policy will lapse if the loan amount plus interest exceeds your policy’s cash value. In addition, if you don’t pay back the loan while you’re alive, the total balance is deducted from your beneficiary’s payout.
Universal Life Insurance
Universal life (UL) insurance trades some of the guarantees of a whole life policy for flexible payment plans and a lower price.
Universal life insurance policies are issued with a target premium amount. This amount is merely a suggestion. After the first year, you can choose how much you want to pay. Many find the flexible nature of a universal policy attractive, but there’s risk involved.
The suggested premium is based on the policy’s assumed investment earnings. Because a UL policy’s investments are tied to the market, there is a risk that the earnings end up too little to support the policy. If the payments aren’t enough to cover the insurance cost and the cash value is too low, the policy can lapse unless you increase the premium or lower the death benefit amount.
Flexibility features extend to the death benefits of a universal life insurance policy. You can increase the benefit amount during times of need and decrease it when things return to normal.
Features of universal life insurance:
Lifelong coverage
Flexible premiums
Adjustable death benefit
Policy loan and withdrawal options
Interest rate growth based on the current market
If you anticipate your income fluctuating throughout the years or insurance needs changing, a universal life insurance policy may be something to consider if you’re willing to monitor it.
For more in-depth information, read our guide discussing the difference between whole life and universal life insurance policies.
Guaranteed Universal Life Insurance
A guaranteed universal life (GUL) policy is arguably the simplest type of permanent life insurance. It is basically a term policy that lasts your entire life.
When you buy a GUL plan, you get a policy with a set amount and regular payment. If you pay the premium on time, your rate and death benefit are guaranteed to stay the same.
Other universal life plans can see costs rise over time because of possible changes in interest rates or insurance costs, but a GUL policy will always remain the same.
Compared to term life insurance, GUL policies have a higher premium because they cover an extended period. However, guaranteed universal life policies are often relatively inexpensive compared to other permanent life plans. Additionally, the consistent prices make a GUL plan far easier to budget for in the long run.
Features of guaranteed universal life insurance:
Lifelong coverage
Fixed premiums
Fixed, guaranteed death benefit
If you have lifelong insurance needs but can’t afford the premiums of whole or universal, look into guaranteed universal life insurance. You can get an instant guaranteed universal life insurance quote by using our online life insurance quoting tool and sliding the Length of Coverage to Forever.
Indexed Universal Life Insurance
An indexed universal life (IUL) insurance policy functions similarly to a standard universal life policy, except that that interest rate is linked to the performance of a specific stock index such as the S&P 500.
The benefit of using an IUL policy instead of simply investing in an index yourself is that there is a guaranteed 0% floor for your investment risk. If the stock market doesn’t perform well, your policy won’t lose value.
The downside is that when the market is strong, an IUL policy has a cap on the interest rate it can earn—typically around 10%-15%.
Features of indexed universal life insurance:
Lifelong coverage
Flexible premiums
Adjustable death benefit
Policy loan and withdrawal options
Interest rate growth based on a specific market index
There is more risk with an IUL and the potential for more reward. If you have a large windfall and have maxed out other traditional retirement accounts, an indexed universal life insurance policy may benefit you. However, be aware that you must closely monitor an IUL policy to avoid fees and lapsing coverage if you take advantage of the flexible premium payments.
Final Expense Life Insurance
If you’re between 50 and 80, you may want to consider final expense life insurance, especially if you have a pre-existing medical condition. This type of insurance is also known as guaranteed issue life insurance, guaranteed whole life insurance, funeral insurance, burial insurance, and guaranteed acceptance life insurance.
Features of final expense life insurance:
Lifelong coverage
Guaranteed approval
No medical exams or questionnaires
Fixed premiums
Graded death benefit
These policies are often referred to as “last resort” life insurance because they are expensive compared to their value. People buy final expense life insurance if they have exhausted all other routes and don’t want to leave their family covering their end-of-life expenses.
