Is Permanent Life Insurance Worth It?

Sean McGinn is an assistant director of Product Positioning in the Risk Products department at Northwestern Mutual. 

Life insurance can be a powerful tool for your family. The death benefit protects them if the unthinkable were to happen to you. But it can also do so much more. The many different types of life insurance fall into two main categories: term insurance, which is temporary; and permanent insurance, which can last your entire life and has additional benefits that you can access while you’re alive. Here, we'll help you understand what permanent life insurance is and how it can work to help you.

When might permanent life insurance make sense?  

Permanent life insurance is a flexible financial tool that offers a unique opportunity to secure your loved ones’ futures while enhancing your own financial security—so there are lots of situations where it makes sense. You can also use it throughout your life, which can make it a strong part of your financial plan. Let’s take a look at a few common scenarios.

To protect your family for the long term 

One of the distinguishing characteristics of permanent life insurance is right in its name: It’s permanent. It’s designed to last for your lifetime. As long as you pay your premiums, your beneficiaries will receive a death benefit—no matter when you die.

To leave an inheritance or charitable gift

If leaving a legacy is important to you, permanent life insurance can be a good way to do it. Unlike a term life insurance policy, which ends at a certain point in time, a permanent life policy will pay a death benefit regardless of when you die (as long as you pay your premiums). And the death benefit is typically tax-free to your beneficiary. So, a permanent life insurance policy will likely be an important part of your estate plan. You can work with your financial advisor and estate attorney to build your estate plan and to refine it as you grow older.

Life insurance can be a great way to leave money for a charitable organization too. This option is often overlooked but it can have considerable advantages for you as the donor and the charity. And some insurance providers allow you to divide your life insurance into two policies so you can give a portion to charity while keeping the rest for your beneficiaries. 

To help protect children’s financial future

You might be surprised to hear that there are many benefits to purchasing a life insurance policy on your children. It’s a great way to give them a financial head start. If anything changes with your child’s health or they choose a line of work that keeps them from being eligible for life insurance, their juvenile policy will already be in place to protect them. And if the unthinkable were to happen, your child’s insurance policy could give you the chance to grieve without having to rush back to work.

Whole life insurance is a common type of permanent life insurance people buy for their kids. With whole life insurance, the policy accumulates cash value. Over time, the kids’ policies could grow significantly. And the younger and healthier they are, the lower your premiums are likely to be. So, getting a permanent policy early on could lock in lower rates for the rest of your or your children’s lives. 

What are some drawbacks of permanent life insurance?

You’ll pay more compared to a term policy

You’ll pay more in premium for a permanent life policy compared to a term policy with a similar death benefit because it covers you for life—not just the term of the policy. Buying a mix of term and permanent life insurance could allow you to get the death benefit you need plus some of the additional benefits of a permanent policy.

There’s more to consider with permanent

Term insurance is pretty easy to understand: You pay a certain amount each month for a certain death benefit until the term ends. With permanent life insurance, there are more options to consider. For example, you may be eligible for riders (small add-ons) to the policy.

The complexity can work to your advantage. You can tailor a whole life insurance policy to suit your specific needs. That’s why it’s so important to work with a financial advisor. Your Northwestern Mutual financial advisor will get to know you and your specific situation and recommend solutions tailored to your needs. 

Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event. Assumes a non-Modified Endowment Contract (MEC).