Key Terms:


  • Insured

    The person who the life insurance protection is on.

  • Beneficiary

    The person or people who will receive the benefit amount if the insured were to die.

  • Policy Owner

    The person who owns the life insurance policy. This can be the insured, the beneficiary, or a third party like a trust.

  • Life Insurance Company

    The companies which issue life insurance policies.

  • Policy

    The contract between the policy owner and the insurance company which lays out the terms of the agreement.

  • In Force

    Your policy is active and you are now covered.

  • Face Amount

    The amount of money paid to the beneficiary if the insured were to die. Also, know as the benefit amount or death benefit.

  • Premium Payment

    The amount of money paid by the policy owner to the insurance company to keep the policy in force.



What is Permanent Life Insurance?


What is Permanent Life Insurance?

Permanent insurance provides lifelong protection as long as premiums are paid. These policies may build up cash value over time, and the cash value grows tax deferred. Cash value is the amount available if you cancel your policy before you die. The face amount is the money that will be paid to your beneficiary if you die. Your beneficiary does not receive the cash value of your policy, only the face amount.

Cash value definitely takes time to grow, but after you have owned the policy for several years, its cash value can offer you several options:

  • You can borrow against your cash value.
  • You can use the cash value to pay your premiums or to buy more coverage.
  • You can exchange the policy by using the cash value for an annuity that will provide income for life or a specified period.
  • You can cancel the policy and receive the cash value in a lump sum, though this will trigger a taxable event for the value that exceeds what you have paid in premiums.

What is Whole Life

Whole Life Insurance is the most traditional type of cash value insurance. Typically, the premium and death benefit stay the same for the life of the policy. The policy’s cash value grows at a fixed rate. You generally pay the same amount in premiums for the life of the policy. When you first take out the policy, premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years. Some whole life policies let you pay premiums for a shorter period, such as for 20 years or until age 65. Premiums for these policies are higher since the premium payments are made during a shorter period.

Learn more about Whole Life Insurance

What is Variable Life

With a variable life policy, you can choose among a variety of investment options with different risks and rewards (stocks, bonds, combination accounts, or options that guarantee principal and interest). Death benefits and cash value will vary depending on the performance of the investments you select. By law, you’ll be given a prospectus for variable life insurance. This prospectus will include financial statements and outline investment objectives, operating expenses, and risks. The cash value of a variable life policy is not guaranteed. If the market doesn’t perform well, the cash value and death benefit may decrease, although some policies guarantee that the death benefit won’t fall below a certain level.

Variable life insurance is a kind of insurance where the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy. If the underlying investments do well, you will have higher death benefits and cash value. Your benefits and cash value will be lower or may disappear if the investments you chose don’t do as well as expected. You may pay extra premiums for a guaranteed death benefit.

What is Universal Life

Universal life gives you flexibility in setting premium payments and the death benefit. Changes must be made within certain guidelines set by the policy; to increase a death benefit, the insurer usually requires evidence of continued good health. A universal life policy can have a variable component.

Universal life insurance is a flexible policy that lets you change your premium payments. You can also adjust the benefit amount. Increases in the benefit amount may require proof that you qualify for the new death benefit. The premiums you pay (less expense charges) go into a policy account that earns interest. Charges are deducted from the account. If your yearly premium payment plus the interest your account earns is less than the charges, your account value will become lower. If it keeps dropping, eventually, your coverage will end. To prevent that, you will need to start making premium payments to increase your premium payments or lower your death benefits. Even if there is enough in your account to pay the premiums, continuing to pay premiums means that you build up more cash value.

Learn more about Universal Life

What is the advantage of Permanent Life Insurance?

  • Lifelong protection as long as the premiums are paid.
  • Premium costs can be fixed or flexible to meet individual financial needs.
  • A policy builds cash value, which can be borrowed against, surrendered for cash, or converted to an annuity. The cash value also can be used to pay premiums or to buy more coverage.

What is the disadvantage of Permanent Life Insurance?

  • Cash value insurance is designed to be kept for the long term.
  • Canceling a cash value policy after only a few years can be very expensive.

How do I know if Permanent Life Insurance is right for me?

If your agent recommends a cash value policy, ask:

  • Are the premiums within my budget?
  • Can I commit to these premiums over the long term?

Cash value insurance provides protection for your entire life. Canceling a cash value policy after only a few years can be costly to get short-term insurance protection. If you don’t plan to keep the policy for the long term, consider another kind of coverage, such as term insurance.

Key Terms:


  • Insured

    The person who the life insurance protection is on.

  • Beneficiary

    The person or people who will receive the benefit amount if the insured were to die.

  • Policy Owner

    The person who owns the life insurance policy. This can be the insured, the beneficiary, or a third party like a trust.

  • Life Insurance Company

    The companies which issue life insurance policies.

  • Policy

    The contract between the policy owner and the insurance company which lays out the terms of the agreement.

  • In Force

    Your policy is active and you are now covered.

  • Face Amount

    The amount of money paid to the beneficiary if the insured were to die. Also, know as the benefit amount or death benefit.

  • Premium Payment

    The amount of money paid by the policy owner to the insurance company to keep the policy in force.