What is the Average Cost of Permanent Life Insurance?

iQuanti: Cost can be a deterrent that keeps people from buying a life insurance policy. But the benefits of permanent life insurance may outweigh the price. If you're in the market for a permanent life insurance policy, here's what you need to know about the average cost of getting a plan for you and your loved ones.

What is permanent life insurance?

Permanent life insurance is a type of plan that lasts for the policyholder's lifetime, unlike a term policy that expires after a set number of years. Whole life and universal life are the two types of policies that are classified as permanent life insurance. And the differentiating factors for permanent life are that these policies offer cash value plus a death benefit.

How does permanent life insurance work?

With a permanent life insurance policy, you may only need to pay premiums until you reach a certain age or for a specific number of years after you purchase it. However, since permanent life insurance policies can accrue cash value, this means they can also be more expensive than a term policy.

Cash value in a permanent life insurance policy provides a flexible, tax-deferred savings vehicle, which can make the policy more valuable than term life insurance. The cash value can be used in several ways, such as making a tax-sheltered investment, passing a legacy to heirs, or paying policy premiums down the line. That means the cash value component can be accessed while you're alive or passed on as a legacy when you're gone.

Types of permanent life insurance

There are two main types of permanent life insurance, whole life, and universal life:

• Whole life insurance: Whole life insurance has fixed premiums and death benefits. And the major benefit of whole life is that cash value has a guaranteed rate of return. Some policies may also pay dividends, leaving you with the option to use these payments to lower premiums or build up cash value.
• Universal life insurance: Universal life policies are more flexible than whole life and may allow you to increase the death benefit or reduce premiums using your cash value. They also typically  offer greater flexibility in investing the cash value account.

What determines the cost of permanent life insurance?

Several factors can change the price of a permanent life insurance policy, including:

• Age: It's no secret that you get closer to death as you age. That's why insurers tend to offer the lowest price policies to young people in their 20s and 30s. Rates tend to shoot up after age 40.
• Gender: Since women typically live longer than men, the rates for women tend to be slightly lower.
• Health status: Many permanent life insurance policies will require an in-person medical examination. You'll also need to answer questions about your health, including smoking status, family history, and risky behaviors. Any red flags regarding your health, like smoking, having a family history of early death, or weekly skydiving adventures, may lead to a higher quote from insurers.

The price you'll pay for a permanent policy can vary based on any of these factors. Generally, policies cost less for younger females in excellent health.

Is permanent life insurance right for me?

Here are several instances when a permanent life insurance policy might be a good fit:

• You want coverage to last a lifetime.
• You want to leave the policy as a legacy for heirs by transferring it later in life.
• Your estate is large enough that you want to offset a potentially significant tax burden for your estate.
• You want to use the cash value as an investment tool.
• You're looking for another way to diversify a large financial portfolio.

The bottom line

Permanent life insurance can be a more costly option than term life insurance, but the cash value component and lifetime coverage can make it worth the cost. Plus, policies may cost less for those who are younger and healthy. That means if you're looking to lock in a great rate on a life insurance policy that's for life, a permanent life insurance policy is worth considering.