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  • What are advantages, disadvantages of permanent life insurance?
  • July 12, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    For decades, “cash value” life insurance meant “lifetime” coverage primarily because the basic whole life policy was designed to provide a level death benefit with level premiums for the “whole” duration of someone’s life.

    However, this type of coverage comes with a steep price because providing a level premium for life, in a scenario where death becomes more likely as we age, whole life premiums for young people were very expensive.

    Whole life insurance, therefore, contains a cash value component that builds over time. Investment yields on such accounts belong always to the life insurer, never to the whole life policyholder.

    Consult with a financial planner to determine if permanent (cash value) life insurance is right for you.

    Whole life insurance is thus designed for the long-term, if not permanent, needs of a policyholder.

    These kinds of policies are becoming extremely popular for people who want level premiums for life, a level death benefit for life, but want to avoid the high costs of building a cash value fund.

    Cash value life insurance can include universal and variable life, among others.

    Like any other life insurance product, permanent (cash value) life insurance has its advantages and disadvantages. It is not right for everyone, but it may be perfect for some, especially for those who have a defined, life-long need for life insurance.

    Use the list below to help determine if permanent (cash value) life insurance is right for you and your insurance needs.

    Advantages of Permanent (Cash Value) Life Insurance:

    -Protection is guaranteed for life at a known cost, as long as the necessary premiums are paid.

    -Premium payments can be fixed or flexible (via universal life) to meet changing personal financial needs.

    -The policy accumulates a cash value that belongs to the insurance company, which can be borrowed against or transferred to the policy owner in the event of surrender. Loans must be paid back with interest or else the beneficiary will receive a reduced death benefit.

    – You may borrow against the policy’s cash value to pay future premiums or use the cash value to provide paid-up insurance, with certain policies. T

    -The policy’s cash value may be surrendered partially or wholly for the cash value, or it may be converted to an annuity. (An annuity is an insurance product that provides an income for a person’s lifetime or for a specific period of time.)

    – A “rider” (additional feature) can be added to a policy, giving you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.

    – It pre-funds rising high insurance costs.

    – The cash value accumulates on a tax-deferred basis in most cases based on current tax law, which could change.

    Disadvantages of Permanent (Cash Value) Life Insurance:

    – Higher premium payments at younger ages, compared to term life insurance, may make it hard to buy enough death protection later on, especially if the family breadwinner’s income is rising.

    – Permanent cash value life insurance requires one to make lifetime assumptions about how much life insurance will be needed over several decades, which is very hard to predict.

    Since there are many permanent (cash value) products available, be sure that you are making a valid, “apples-to-apples”, comparison between policies.

    If you seek further assistance or additional information, please feel free to email me at

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

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Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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