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Permanent vs. whole life insurance: What's the difference?

Here’s what you need to know

What’s the difference between permanent life insurance and whole life insurance? Whole life insurance is a subcategory of permanent life insurance, meaning that every whole life insurance policy is also a permanent life insurance policy. There’s no difference between whole vs. permanent life insurance, but there is a difference between whole life insurance vs. other permanent life insurance products like universal life and variable life.

There’s also a significant difference between whole life insurance and term life insurance. Whole life insurance, like all permanent life insurance policies, is designed to provide lifelong coverage. Term life insurance is designed to provide life insurance coverage for a designated term length — often 10, 20, or 30 years. Both whole life and term life insurance policies offer level premiums that remain constant over the life of the policy, but term life insurance premiums tend to be more affordable.

Some people ask themselves whether they should choose permanent vs. whole life insurance — but since whole life insurance is a type of permanent life insurance, the real question you should be asking is whether you should choose whole life insurance vs. term life insurance. Which policy is likely to offer the lowest monthly premium payments? How much will it cost to take out enough coverage to pay for your final expenses and cover other financial obligations such as mortgage payments? Are you taking out life insurance to provide a death benefit to your loved ones, or are you looking for a life insurance policy that includes a cash value component that can be borrowed against while you’re still alive?

Here’s what you need to know about whole life insurance vs. permanent life insurance vs. term life insurance — and how to decide what type of life insurance is right for you.

In this article:

What is permanent life insurance?

Permanent life insurance is an umbrella term for any life insurance policy that is designed to last your entire life. Unlike term life insurance, which is designed to provide life insurance coverage for a specific period of time, permanent life insurance provides lifelong coverage. As long as you are able to cover the costs of your monthly premium payments, your permanent life policy will remain active your entire life.

Like term life insurance, permanent life policies allow you to choose the amount of coverage you need — whether you’re looking for just enough life insurance coverage to pay off final expenses or hoping to provide your beneficiaries with the kind of death benefit that can cover other financial obligations such as mortgage payments or childcare costs. In most cases, choosing a higher coverage amount means paying a higher premium.

Most permanent life insurance policies offer a level premium  — which means that you’ll make the same premium payment every month or year, no matter how long you have the permanent policy. Many permanent life insurance policies are structured so that your policy accumulates cash value with every premium payment, giving you a financial resource that can be borrowed against or used to cover future premiums.

What is whole life insurance?

Whole life insurance is a type of permanent life insurance. As the name implies, whole life insurance is designed to cover you for your whole life — as long as you continue paying your insurance premiums. Miss a premium payment, and your whole life insurance policy could lapse.

How much does whole life insurance cost? It depends. In most cases, the premiums on a whole life insurance policy are likely to be higher than the premiums you’d pay for a term life insurance policy offering the same amount of coverage. However, your whole life insurance premium payments – like those for term insurance – are likely to be less expensive if you take out your life insurance policy when you are young and healthy — which means that if you want to make your whole life insurance policy as affordable as possible, make sure you apply for life insurance early.

Whole life insurance generally includes a cash value component that can be borrowed against or used to pay future monthly premiums. Many people choose whole life insurance to take advantage of the policy’s cash value benefit, which can be used to cover home renovations, college education costs or retirement expenses. That said, you should always be careful with a cash value life insurance policy — if you borrow against your policy’s cash value and are unable to pay it back with interest, your beneficiaries could end up receiving a lower death benefit. You could also end up owing a hefty tax bill on the amount of money you borrowed if it’s more than the premiums you’ve paid in, so make sure you only withdraw as much of your policy’s cash value as you can afford to pay back.

What other types of permanent life insurance are there?

Whole life insurance isn’t the only type of permanent life insurance available to consumers. You might also want to consider universal life insurance, which gives you the option to pay flexible premiums instead of being locked into a fixed payment. You could also look for a variable life insurance policy, which allows you to invest your policy’s cash value and take advantage of market growth — though you should also be prepared for the possibility of market decline.

Many categories of permanent life insurance have their own subcategories, each of which offers its own unique benefits. Indexed universal life insurance, for example, allows you to allocate a portion of your policy’s cash value to a fund whose return is based on the performance of a broad stock market index such as the S&P 500. Guaranteed universal life insurance provides a guaranteed death benefit. Variable universal life insurance allows you to invest your universal life policy’s cash value.

When you’re considering life insurance products, make sure to consider all of the pros and cons before making your decision. If you’re thinking about permanent life insurance, remember that it isn’t as simple as whole life insurance vs. permanent insurance — it’s more like whole life vs. variable life vs. universal life vs. variable universal life vs. indexed universal life vs. guaranteed universal life. You have a lot of choices, so do your best to choose carefully.

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Is permanent life insurance right for you?

If you are looking for a life insurance product that is designed to provide coverage for your entire life, permanent life insurance could be a good option. In addition to the permanent coverage that a permanent life insurance policy can provide, you can also take advantage of the cash value component. If you are looking for extra money to put towards an unexpected expense or financial obligation, taking out a policy loan against your life insurance policy could get you the funds you need — as long as you can afford to pay back the money you borrowed.

What about permanent vs. whole life insurance? Since there are so many different types of permanent life insurance, it’s a good idea to talk to an insurance agent before choosing a permanent life insurance policy. Do you want your permanent life insurance policy to include an investment option? Do you want to ensure that you’re choosing a policy with level premiums that will remain the same for decades to come? Take your time before selecting a permanent life insurance policy, and make sure to review all of your options within your insurance company before beginning your application.

Is whole life insurance right for you?

If you’re thinking about whole life insurance vs. other types of permanent life insurance, ask yourself whether a basic life insurance policy offering lifelong coverage is right for you. A whole life policy comes with a cash value component, but may not give you the investment options associated with variable life insurance policies or the flexible monthly premiums associated with universal life policies. That said, a whole life insurance policy may give you the ability to pay level premiums for the remainder of your life and offers the peace of mind that comes with knowing exactly how much money you’ll be able to leave to your beneficiaries.

What else do you need to know about permanent vs. whole life insurance?

Again, since whole life insurance is a form of permanent life insurance, maybe the question you should be considering isn’t permanent vs. whole life insurance — it’s permanent life insurance vs. term life insurance. Do you want an insurance product that provides lifelong coverage in exchange for higher premiums, or do you want an insurance product that offers lower premiums in exchange for coverage that lasts for a specific period of time?

Many people who are considering permanent life insurance might be better served with a term life insurance policy instead. Not only are term life insurance premiums more affordable, but term life policies allow you to focus your life insurance coverage on the years in which you are most likely to leave behind financial obligations. By choosing a 10, 15, 20, 25 or 30-year term life insurance policy, you can carry enough life insurance coverage to provide for your beneficiaries until your mortgage is paid off or your children graduate from college — and after that, you can take the money you would have put towards monthly premium payments and start working towards another major financial goal.

If you’re thinking about whole life insurance vs. other types of permanent life insurance like variable life or universal life, make sure you think about term life insurance as well. In some cases, whole life insurance could be the best option for you and your family. In other cases, term life insurance could provide the coverage you need at a much lower cost — making term life policies one of the most affordable ways of providing for your loved ones.

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About Nicole Dieker

Nicole Dieker has been a full-time freelance writer since 2012, with a focus on personal finance and habit formation. In addition to Haven Life, her work regularly appears at Lifehacker, Bankrate, CreditCards.com, and Vox. Dieker spent five years as a writer and editor for The Billfold, a personal finance blog where people had honest conversations about money, and is the author of Frugal and the Beast: And Other Financial Fairy Tales.

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Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html

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