Consider your financial goals

Oct 13, 2025 by wbrum.org 111 views

Understanding the Drawbacks of Permanent Life Insurance

Permanent life insurance is a type of life insurance that provides coverage for the policyholder's entire lifetime, as long as premiums are paid. It also accumulates a cash value over time, which can be borrowed against or used to pay premiums. However, like any other financial product, permanent life insurance has its drawbacks. In this article, we will explore the potential drawbacks of permanent life insurance and help you make an informed decision.

A. Ability to access cash value

While the ability to access cash value is a benefit of permanent life insurance, it can also be a drawback for some policyholders. The cash value is typically invested in a separate account, and the policyholder can borrow against it or withdraw from it. However, if the policyholder borrows too much or withdraws too much from the cash value, it can reduce the death benefit and potentially lead to a lapse in coverage.

B. Generally higher premiums than term insurance

One of the main drawbacks of permanent life insurance is that it typically has higher premiums than term life insurance. This is because permanent life insurance provides a guaranteed death benefit and accumulates a cash value over time, which requires a larger premium payment. Additionally, permanent life insurance often has a longer term than term life insurance, which can also increase the premium cost.

C. Must be renewed periodically

Permanent life insurance does not require renewal, unlike term life insurance. However, some types of permanent life insurance, such as whole life insurance, may require a policyholder to pay premiums for a certain number of years before the cash value becomes available. This can be a drawback for policyholders who are looking for a more flexible or affordable option.

D. Paid out if you die

This option is actually a benefit of permanent life insurance, not a drawback. Permanent life insurance provides a guaranteed death benefit to the policyholder's beneficiaries if they die while the policy is in force. This can provide financial security and peace of mind for the policyholder's loved ones.

In conclusion, while permanent life insurance can provide a guaranteed death benefit and accumulate a cash value over time, it also has its drawbacks. The ability to access cash value can be a double-edged sword, and the generally higher premiums than term insurance can be a significant drawback for some policyholders. Additionally, some types of permanent life insurance may require a policyholder to pay premiums for a certain number of years before the cash value becomes available. However, the guaranteed death benefit and cash value accumulation can make permanent life insurance a valuable investment for some policyholders.

Q: What is the difference between permanent life insurance and term life insurance? A: Permanent life insurance provides a guaranteed death benefit and accumulates a cash value over time, while term life insurance provides a death benefit for a specified period of time.
Q: How do I choose between permanent life insurance and term life insurance? A: You should consider your financial goals, risk tolerance, and budget when choosing between permanent life insurance and term life insurance.
Q: Can I borrow against the cash value of my permanent life insurance policy? A: Yes, you can borrow against the cash value of your permanent life insurance policy, but be aware that this can reduce the death benefit and potentially lead to a lapse in coverage.

Consider your financial goals: Before choosing between permanent life insurance and term life insurance, consider your financial goals and risk tolerance.
Shop around: Compare premiums and benefits from different insurance companies to find the best option for you.
Read the fine print: Make sure you understand the terms and conditions of your policy, including any fees or penalties associated with borrowing against the cash value.

National Association of Insurance Commissioners: The National Association of Insurance Commissioners provides information and resources on life insurance, including a guide to permanent life insurance.
Life Insurance Association: The Life Insurance Association provides information and resources on life insurance, including a guide to permanent life insurance.
Your state's insurance department: Your state's insurance department can provide information and resources on life insurance, including a guide to permanent life insurance.
Permanent Life Insurance Q&A: Understanding the Basics

Permanent life insurance is a type of life insurance that provides coverage for the policyholder's entire lifetime, as long as premiums are paid. It also accumulates a cash value over time, which can be borrowed against or used to pay premiums. However, like any other financial product, permanent life insurance can be complex and confusing. In this article, we will answer some of the most frequently asked questions about permanent life insurance to help you make an informed decision.

Q: What is permanent life insurance?

A: Permanent life insurance is a type of life insurance that provides coverage for the policyholder's entire lifetime, as long as premiums are paid. It also accumulates a cash value over time, which can be borrowed against or used to pay premiums.

Q: What are the different types of permanent life insurance?

A: There are several types of permanent life insurance, including:

Whole life insurance: This type of insurance provides a guaranteed death benefit and accumulates a cash value over time.
Universal life insurance: This type of insurance provides a flexible premium payment schedule and allows policyholders to invest their cash value in a variety of investments.
Variable life insurance: This type of insurance allows policyholders to invest their cash value in a variety of investments, such as stocks and bonds.
Indexed universal life insurance: This type of insurance provides a flexible premium payment schedule and allows policyholders to invest their cash value in a variety of investments, including stocks and bonds.

Q: How does permanent life insurance work?

A: Permanent life insurance works by providing a guaranteed death benefit to the policyholder's beneficiaries if they die while the policy is in force. The policyholder also accumulates a cash value over time, which can be borrowed against or used to pay premiums.

Q: What is the cash value of a permanent life insurance policy?

A: The cash value of a permanent life insurance policy is the amount of money that accumulates over time, which can be borrowed against or used to pay premiums. The cash value is typically invested in a separate account, and the policyholder can access it at any time.

Q: Can I borrow against the cash value of my permanent life insurance policy?

A: Yes, you can borrow against the cash value of your permanent life insurance policy. However, be aware that this can reduce the death benefit and potentially lead to a lapse in coverage.

Q: How do I choose between permanent life insurance and term life insurance?

A: You should consider your financial goals, risk tolerance, and budget when choosing between permanent life insurance and term life insurance. Permanent life insurance provides a guaranteed death benefit and accumulates a cash value over time, while term life insurance provides a death benefit for a specified period of time.

Q: Can I cancel my permanent life insurance policy?

A: Yes, you can cancel your permanent life insurance policy at any time. However, be aware that this may result in a surrender charge, which can be a significant amount of money.

Q: What is a surrender charge?

A: A surrender charge is a fee that is charged by the insurance company when a policyholder cancels their policy. The surrender charge is typically a percentage of the policy's cash value.

Q: How do I avoid a surrender charge?

A: You can avoid a surrender charge by keeping your policy in force for a certain number of years, typically 10-15 years. You can also avoid a surrender charge by surrendering your policy for a lump sum payment.

Q: Can I change my permanent life insurance policy?

A: Yes, you can change your permanent life insurance policy at any time. However, be aware that this may result in a change to your premium payments, death benefit, or cash value.

Q: How do I change my permanent life insurance policy?

A: You can change your permanent life insurance policy by contacting your insurance company and requesting a change. You will typically need to provide proof of identity and proof of insurability.

Q: What is proof of insurability?

A: Proof of insurability is documentation that shows you are still insurable, such as a medical exam or a statement from your doctor.

Q: Can I add riders to my permanent life insurance policy?

A: Yes, you can add riders to your permanent life insurance policy. Riders are additional features that can be added to your policy, such as a waiver of premium rider or a long-term care rider.

Q: What is a waiver of premium rider?

A: A waiver of premium rider is a feature that waives your premium payments if you become disabled or unable to work.

Q: What is a long-term care rider?

A: A long-term care rider is a feature that provides coverage for long-term care expenses, such as nursing home care or home health care.

Q: Can I use my permanent life insurance policy as collateral for a loan?

A: Yes, you can use your permanent life insurance policy as collateral for a loan. However, be aware that this can result in a reduction in the death benefit and potentially lead to a lapse in coverage.

Q: How do I use my permanent life insurance policy as collateral for a loan?

A: You can use your permanent life insurance policy as collateral for a loan by contacting your insurance company and requesting a loan. You will typically need to provide proof of identity and proof of insurability.

Q: What is a loan against a life insurance policy?

A: A loan against a life insurance policy is a loan that is secured by the policy's cash value. The loan is typically interest-free, but it can reduce the death benefit and potentially lead to a lapse in coverage.

Q: Can I use my permanent life insurance policy to pay for funeral expenses?

A: Yes, you can use your permanent life insurance policy to pay for funeral expenses. However, be aware that this may result in a reduction in the death benefit and potentially lead to a lapse in coverage.

Q: How do I use my permanent life insurance policy to pay for funeral expenses?

A: You can use your permanent life insurance policy to pay for funeral expenses by contacting your insurance company and requesting a payment. You will typically need to provide proof of identity and proof of insurability.

Q: What is a funeral expense rider?

A: A funeral expense rider is a feature that provides coverage for funeral expenses, such as burial costs or cremation costs.

Q: Can I use my permanent life insurance policy to pay for long-term care expenses?

A: Yes, you can use your permanent life insurance policy to pay for long-term care expenses. However, be aware that this may result in a reduction in the death benefit and potentially lead to a lapse in coverage.

Q: How do I use my permanent life insurance policy to pay for long-term care expenses?

A: You can use your permanent life insurance policy to pay for long-term care expenses by contacting your insurance company and requesting a payment. You will typically need to provide proof of identity and proof of insurability.

Q: What is a long-term care rider?

A: A long-term care rider is a feature that provides coverage for long-term care expenses, such as nursing home care or home health care.

Q: Can I use my permanent life insurance policy to pay for business expenses?

A: Yes, you can use your permanent life insurance policy to pay for business expenses. However, be aware that this may result in a reduction in the death benefit and potentially lead to a lapse in coverage.

Q: How do I use my permanent life insurance policy to pay for business expenses?

A: You can use your permanent life insurance policy to pay for business expenses by contacting your insurance company and requesting a payment. You will typically need to provide proof of identity and proof of insurability.

Q: What is a business expense rider?

A: A business expense rider is a feature that provides coverage for business expenses, such as business loan payments or business overhead expenses.

Q: Can I use my permanent life insurance policy to pay for tax liabilities?

A: Yes, you can use your permanent life insurance policy to pay for tax liabilities. However, be aware that this may result in a reduction in the death benefit and potentially lead to a lapse in coverage.

Q: How do I use my permanent life insurance policy to pay for tax liabilities?

A: You can use your permanent life insurance policy to pay for tax liabilities by contacting your insurance company and requesting a payment. You will typically need to provide proof of identity and proof of insurability.

Q: What is a tax liability rider?

A: A tax liability rider is a feature that provides coverage for tax liabilities, such as income tax or estate tax.

Q: Can I use my permanent life insurance policy to pay for estate taxes?

A: Yes, you can use your permanent life insurance policy to pay for estate taxes. However, be aware that this may result in a reduction in the death benefit and potentially lead to a lapse in coverage.

Q: How do I use my permanent life insurance policy to pay for estate taxes?

A: You can use your permanent life insurance policy to pay for estate taxes by contacting your insurance company and requesting a payment. You will typically need to provide proof of identity and proof of insurability.

Q: What is an estate tax rider?

A: An estate tax rider is a feature that provides coverage for estate taxes, such as estate tax or inheritance tax.