Term life insurance eventually runs out. Permanent life insurance is built to never expire, but that lifelong coverage comes at a real cost.
July 19, 2026
If you’re shopping for life insurance, you’ll need to choose between a term life policy and a permanent life policy. Permanent life insurance provides lifelong coverage and builds cash value you can access while you're alive.
Permanent life insurance policies, like whole life, are among the most popular life insurance products. In fact, permanent life insurance products accounted for 83% of new individual life insurance premiums in the U.S. in 2025.
Here's how permanent life insurance works, what it costs, and whether it's the right fit for your financial plan.
Say you've had a term policy for 15 years and it's about to expire. You're in your 50s, your health isn't what it used to be, and you still have people who depend on you financially. That's the gap permanent life insurance is designed to fill.
Unlike term life insurance, which covers you for a set period (usually 10 to 30 years) and then ends, permanent policies last as long as you pay the premiums and include a cash value component that grows over time.
That lifelong structure is a big part of why more people are buying in. In fact, individual life insurance new annualized premium hit a record $17.5 billion in 2025, up 10% from the year before.
Permanent life insurance makes sense when your coverage needs never go away. Things like final expenses, a special-needs dependent, or leaving a legacy to heirs. It also makes sense when you want the cash value and living benefits, not just a death benefit.
Permanent life insurance matters because some financial needs don't come with an expiration date, and term coverage does.
About 52% of Americans currently have life insurance, but more than 100 million remain uninsured or underinsured. For many, the problem isn't just having coverage, but having coverage that lasts long enough.
For many, the problem isn't just having coverage, it's having coverage that lasts long enough. A 20-year term policy purchased at age 35 runs out at 55, potentially leaving you without protection right when you're harder, and more expensive, to insure.
Permanent life insurance addresses this in three ways:
One significant barrier persists: cost perception. According to a recent LIMRA Insurance Barometer, 42% of Americans say life insurance is too expensive, and 72% overestimate the true cost of a basic policy by three to six times. Understanding what permanent coverage actually costs, and what you're getting for the premium, can help you make a more informed decision.
Permanent life insurance works by combining two components into one policy: a death benefit that pays your beneficiaries when you die and a cash value account that accumulates money over time.
Here's how the money flows:
Component | What It Does |
|---|---|
Cost of insurance | Covers the insurer's risk of paying your death benefit |
Cash value | Accumulates in a savings or investment account within your policy |
Administrative fees | Covers the insurer's operating costs |
The cash value grows tax-deferred, meaning you won't owe income taxes on the gains as they accumulate. You can access it in four ways:
The tradeoff: Permanent life insurance premiums are significantly higher than term, roughly five to eight times more for the same death benefit, according to industry benchmarks. That's because you're funding both lifelong coverage and cash value accumulation, not just the insurer's risk for a fixed period.
There are four main types of permanent life insurance: whole life, universal life, variable universal life (VUL), and indexed universal life (IUL). Each offers lifelong coverage and cash value, but they differ in how premiums, death benefits, and cash value growth work.
Whole life insurance is the most straightforward type of permanent coverage. Your premiums stay fixed for life, your death benefit is guaranteed, and your cash value grows at a guaranteed rate set by the insurer.
Whole life reached a record $6.4 billion in new premium in 2025, up 7% year over year, and represented 37% of the total U.S. life insurance market. Much of that growth has been driven by final expense products that make permanent coverage accessible to middle-market consumers.
If you purchase whole life from a mutual insurance company, you may also receive annual dividends. These aren't guaranteed, but some companies have an impressive track record.
Who it's for: Whole life is well-suited for people who value predictability and guaranteed returns over flexibility.
Universal life (UL) insurance gives you something whole life doesn't: flexibility. You can adjust your premium payments and death benefit amount over time, within policy limits.
Your cash value earns interest based on current market rates, typically with a guaranteed minimum floor (often around 2-3%) so it won't drop to zero in a low-rate environment. But that flexibility comes with a risk: if you consistently underpay your premiums, your cash value can erode, and the policy could lapse.
Fixed universal life new premiums were $985 million in 2025, down 4% from the prior year, holding 6% of the total market. The decline reflects consumers shifting toward indexed and variable products with higher growth potential.
Who it's for: Universal life is well-suited for people who want the ability to adjust their coverage as their financial situation changes.
Variable universal life (VUL) combines premium flexibility with investment sub-accounts, similar to mutual funds, that let you invest your cash value in stocks, bonds, and other securities.
The upside is higher growth potential than whole or universal life. The downside is that you assume the investment risk. If the markets drop, your cash value can decline, and you may need to pay higher premiums to keep the policy in force.
VUL new premium totaled $2.6 billion in 2025, up 17% year over year, holding 15% of the total U.S. individual life insurance market.
Who it's for: VUL is well-suited for experienced investors who are comfortable managing market risk inside a life insurance policy.
Indexed universal life (IUL) ties your cash value growth to the performance of a stock market index, like the S&P 500, without directly investing in the market. Your returns are subject to a cap (a maximum rate you can earn) and a floor (typically 0%, meaning you won't lose money when the index drops).
IUL is the fastest-growing permanent life insurance product. New premium hit $4.5 billion in 2025, up 17% from 2024, representing 25% of the total U.S. life insurance market. Growth has been driven by expanded distribution, enhanced products, and a strong equity market.
Who it's for: IUL is well-suited for people who want market-linked growth potential with downside protection.
Here's how whole life, universal life, variable universal life, and indexed universal life compare across the features that matter most.
Feature | Whole Life | Universal Life | Variable UL | Indexed UL |
|---|---|---|---|---|
Premium | Fixed | Flexible | Flexible | Flexible |
Death benefit | Guaranteed | Adjustable | Adjustable | Adjustable |
Cash value growth | Guaranteed rate + possible dividends | Market interest rate (with minimum floor) | Sub-account investments (you bear risk) | Index-linked with floor and cap |
Risk level | Low | Moderate | High | Moderate |
2025 market share | 37% | 6% | 15% | 25% |
Well-suited for | Predictability | Flexibility | Growth-oriented investors | Balanced growth + protection |
Permanent life insurance costs significantly more than term, roughly five to eight times more for the same death benefit, according to industry benchmarks.
If you're healthy 35-year-old looking at a $500,000 death benefit, A 20-year term policy might run you $25 to $35 per month. A comparable whole life policy could cost $200 to $400 per month or more, depending on the insurer, your health, and whether the policy pays dividends.
Why such a big difference? With term, you're only paying for the insurer's risk during a fixed window. With permanent life, you're funding three things simultaneously: lifelong coverage, cash value accumulation, and administrative costs.
Several factors affect your premium:
Cost Factor | How It Affects Price |
|---|---|
Age | Younger = lower premiums; costs rise significantly after 50 |
Health and medical history | Better health = lower rates; tobacco use increases premiums substantially |
Coverage amount | Higher death benefit = higher premium |
Policy type | Whole life is typically the most expensive; universal life can be less |
Gender | Women generally pay less due to longer average life expectancy |
Most people overestimate how much life insurance actually costs. According to the 2024 LIMRA Insurance Barometer, 72% of Americans overestimate costs by three to six times, so getting an actual quote is the only way to know what you'd pay.
Whether permanent life insurance makes sense depends on your financial situation, your goals, and how long you need coverage.
Permanent life insurance may be a good fit if you:
If permanent life insurance doesn't match your needs, say you're focused primarily on income replacement for a fixed period — term life is a practical, affordable alternative. A life insurance calculator can help you figure out how much term coverage you'd actually need.
Term life insurance offers simple and straightforward protection. These types of policies typically offer affordable coverage and can be a smart choice for people with more time-bound financial responsibilities, like a family who only needs coverage until their children graduate from college or a single person who's paying off student loans.
Now that you understand how permanent life insurance works, here's how to take the next step:
“The best time to buy permanent life insurance is when you’re young and healthy. Your insurability is the real asset, so it's better to lock it in early than to wait until you're older and the premiums are much higher. Plus, the cash value needs time to compound, so the earlier you can fund it, the better,” adds McDermott.
Can you cash out a permanent life insurance policy?
Yes, you can access your cash value by surrendering the policy, taking a withdrawal, or borrowing against it with a policy loan. Here's a deeper look at how to withdraw money from a life insurance policy. Each method has different tax implications. Surrendering may trigger income tax on gains above your cost basis, while policy loans aren't taxed as long as the policy stays in force.
How long does it take for permanent life insurance to build cash value?
Most permanent life policies take five to 10 years before cash value accumulates enough to be practically useful. In the early years, a larger portion of your premium goes toward insurance costs and fees. The exact timeline depends on your premium amount, policy type, and any surrender charges that apply during the initial period.
Is permanent life insurance taxable?
The death benefit is generally income tax-free for your beneficiaries. Cash value grows tax-deferred inside the policy, and policy loans aren't taxed as long as the policy remains in force. However, surrendering a policy may trigger income taxes on any gains above what you've paid in premiums.
Can you convert a term life insurance policy to permanent?
Many term policies include a conversion option that lets you switch to permanent coverage without a new medical exam. This can be valuable if your health has changed since you originally applied. But there's usually a deadline — often before age 65 or before the term expires — so check your policy's specific conversion terms early.
This article draws on publicly available data from industry research organizations, regulatory filings, and insurer publications. Our primary market data source is the LIMRA 2025 Individual Life Insurance Sales Survey, which tracks premium volume, policy counts, and product-level trends across the U.S. life insurance market. Consumer sentiment data comes from the LIMRA Insurance Barometer.
Industry-level financial metrics are drawn from the U.S. Treasury Federal Insurance Office 2025 Annual Report. Product-level details reference insurer publications from Guardian Life and the Insurance Information Institute. The BestMoney editorial team reviewed this article for accuracy and consumer relevance.
BestMoney's editorial team brings together more than 50 financial experts and over 3,000 hours of research across life insurance, mortgages, credit cards, and other financial products. Our life insurance content is reviewed by credentialed professionals — including licensed insurance advisors and certified financial planners — who verify accuracy, flag outdated information, and ensure our guidance reflects current market conditions.
We help consumers compare options based on coverage needs, cost, and provider reliability. Our editorial team evaluates providers using a proprietary BestMoney Total Score that blends click trends, brand reputation, and editorial feature reviews.
Elizabeth Rivelli is a business finance and insurance expert at BestMoney.com with over five years of experience covering car, home, life, and health insurance. She has contributed to major outlets such as Investopedia, Forbes, CNN Underscored, U.S. News & World Report, and Bankrate. Elizabeth also partners with insurance companies to provide readers with practical insights into industry trends.