Explore the different types of permanent life insurance. Learn the benefits and drawbacks of these policies and find the right one for you.
Article: 6 minutes
Updated: March 5, 2026 Published: March 23, 2023
By: Matt Lyon Reviewed by: Mikel Van Cleve, CFP®
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York.
Permanent life insurance offers coverage for a lifetime and typically has cash value while you're alive. The type of permanent insurance that's right for you depends on your life insurance needs and strategy.
Permanent policies have the ability to keep protecting you until old age. They help with things like estate and fairness planning, protecting survivor income or final expenses. While the policy is active, the owner may be able to access the cash value component. This can be useful to help pay for expenses like a child's college tuition or to supplement retirement income.
There are several types of permanent life insurance. Because they vary from one type to the next, it's important to start with understanding the basics.
There are three basic types of permanent life insurance. Each offers various levels of payment flexibility and potential cash value accumulation:
For those in search of lifetime benefits, predictable premiums and steady cash accumulation.
For those in search of lifetime benefits, flexibility and greater cash value potential.
For those in search of lifetime benefits and market return potential in the cash value.
Let's get into the details of each, so you can differentiate them.
The most basic form of permanent insurance is whole life insurance. It's also called straight or ordinary life, because of its predictable premiums and benefits.
Most whole life policies have several premium payment choices to consider. One beneficial option is to pay up your policy after reaching a certain age or number of years.
How these policies work, depends on the type of whole life you're considering.
There are three basic types of whole life policies:
Offers lifetime protection with fixed premiums, death benefit and cash value growth. Medical exams are mandatory unless the policy starts from a term conversion. Policy owners can customize the features of the policy with added riders, some of which may come at an additional cost.
Like a standard whole life policy with a twist — a dividend payment. The insurance company shares its profits through paying non-guaranteed dividends to policy holders. Though the amount can fluctuate, it usually goes to increasing the cash value balance.
These policies are sometimes called burial or final expense policies. They typically offer lower coverage amounts and more modest cash value growth potential. Premiums are often higher due to bypassing medical underwriting.
Universal life insurance, or Flexible Premium Adjustable Life, offers greater flexibility than other choices.
These policies combine lifetime coverage with flexible premiums and death benefits.
The option to increase or decrease your payments provides adaptability for life changes. But it can also result in changes to coverage or cash value.
There are three basic types of universal life insurance. The main difference among them is how the cash value accrues.
Often referred to as UL, or Flexible Premium Adjustable Life, this is the most basic of the universal options. It offers flexible premium payments, tax deferred cash value growth and lifetime coverage.
Part of the payments go to the life insurance cost while the rest covers cash value and applicable fees. The cash value interest rate is set from the life insurer's general portfolio.
A risk to all universal life policies is that they need to be properly funded to avoid lapse. This means premium payments need to be enough to cover the cost of insurance and policy fees.
Cash value growth can offset this. But if it's not high enough or there's no more remaining, then the policy has a risk of lapse. To avoid losing coverage, some insurers offer a no-lapse or secondary guarantee.
These polices offer the flexibility of universal life but with greater risk-reward potential. This happens because the cash value growth is market-based.
A portion of the policy premium is allocated to various sub-accounts offered by the insurance company. Your choice of allocation determines how the cash value can grow or decline based on market performance. Keep in mind that premiums for variable universal life can be higher due to the investment management fees.
Regular reviews are necessary because the death benefit is often tied to the cash value. This fluctuation in the subaccounts performance means you may be leaving less for your beneficiaries than intended.
The cash value interest rate for an indexed universal policy is tied to a market index. But there's a limit on how much of that gain or loss your account will take part in.
For example, if the index grows 20% in a given year, there will be a cap on how much your cash value increases. This is called a participation rate.
Indexed universal life is also less expensive than other universal policies. This is because the maintenance cost to track an index is lower than to manage a subaccount.
Variable life insurance is akin to a combination of whole and universal insurance. With variable life, the death benefit and cash value change based on investment subaccount performance. But unlike a universal life policy, there's a set premium and death benefit.
It's important to note that variable life insurance is more volatile than other types of permanent life insurance. It's best for those who are comfortable with the idea. of extra risk.
Think of permanent life insurance as coverage first and cash value second.
In other words, though they have cash value components, life insurance is first and foremost a way to provide a benefit to your loved ones. It's not to be a substitute for traditional methods of investing or saving.
Talk to life insurance specialist about the permanent policy that's right for you.