Photo of a mother and daughter who have helped to protect their future with permanent life insurance.

Permanent life insurance: What type is right for you?

Understand your options

You know it makes sense to have life insurance as part of your financial plan. But there are so many choices. How do you know what’s right for you?

Permanent life insurance options have expanded over the years.1 You can pair permanent with term insurance coverage, or use it alone to meet your own needs.

“Term insurance has been popular because premiums are often more affordable. That’s helpful when you’re first starting out, but over time, permanent life insurance has some appeal. You can’t outlive your coverage, as long as you pay the premiums, and that can be significant,” says Heather Winston, CFP®, assistant director of financial advice and planning at Principal®.

The permanent life insurance death benefit is federal tax-free money. And you have the potential to build cash value that you can use over the years as you see fit.

Comparing four types of permanent life insurance

1. Whole life insurance2

PremiumDeath benefitCash valueRisk toleranceCost
Fixed—never goes upFixed, for lifeGuaranteed cash value typically grows at a rate that equals the death benefit at age 100LowHigh

2. Universal life insurance

PremiumDeath benefitCash valueRisk toleranceCost
Flexible (can change the amount you pay, if needed)Flexible (can change the amount of coverage you have, within limits)Accumulates cash value based on a fixed interest rate set by the life insurance company; has a guaranteed minimumMedium to low (with additional guarantees for death benefit)Medium to low

3. Indexed universal life insurance

PremiumDeath benefitCash valueRisk toleranceCost
Flexible Flexible Accumulates cash value based in part on movement of a linked stock market index; can earn a maximum and minimum rate Medium to highMedium

4. Variable universal life insurance

PremiumDeath benefitCash valueRisk toleranceCost
Flexible Flexible Accumulates cash value based on market performance; no limit to earnings or loss potentialMedium to highHigh

When permanent life insurance might be right for you

In certain situations, permanent life insurance may be a good fit, such as when:

  • You have a partner, spouse, and/or family who depends on your income.
  • You’re a young investor willing to take risks and stay the course for more potential cash value.
  • You already have a term life insurance policy and want to transition a portion to something more permanent.
  • You have a high net worth and want life insurance for estate or inheritance tax reasons.
  • You want a life insurance benefit for your heirs, no matter when you die.
  • You’ve maxed out your 401(k) and Roth IRA, and want to diversify how your assets are taxed and have more choice in tapping future money.

Still not sure what kind of life insurance you need?

Take our quiz to find out what kind of policy is right for you: perm, term, or both.

“It’s hard to say which type of life insurance is better for you because it really depends on your unique circumstances and financial goals,” Winston says. “That said, often a combination of term and permanent insurance is the right solution.”

What’s next?

1 All guarantees and benefits of insurance policies are backed by the claims-paying ability of the issuing insurance company; they are not backed by the broker/dealer.

2 Principal does not offer a whole life insurance product.

Before investing, carefully consider the investment option objectives, risks, charges, and expenses. Contact a financial professional or visit for a prospectus or, if available, a summary prospectus containing this and other information. Please read it carefully before investing.