How Permanent Life Insurance Works

Permanent life insurance policies cover you until death, assuming you pay your premiums. Whole life is the most well-known version of this type of life insurance, but there are other flavors, including universal life, indexed universal life and variable life.

Permanent life insurance policies build cash value as they age. A portion of the premium payments is added to a cash account, which can earn interest or be invested, depending on the type of policy you hold.

Cash value usually rises quickly at the beginning of a policy’s life, when you’re younger and cheaper to insure. Whole life policies increase their cash value at a fixed rate, while universal policies do not. It takes time to build the cash value in these accounts, which you should consider when buying life insurance.

You can then use the cash value of your life insurance while you’re still alive. You can borrow from it, make withdrawals or just use the interest payments to cover your premium later in life.