Types of Permanent Life Insurance: Whole Life and Universal Life Explained

02.05.2026 | Category: Life Insurance

Underwritten by United of Omaha Life Insurance Company
Reviewed by: Andrew Berger, Mutual of Omaha VP and Actuary

Estimated Read Time: ~7 minutes

Summary: Permanent life insurance offers lifelong coverage and a cash-value component. This article outlines the various types of permanent life insurance, highlighting their key similarities and differences, and guides you in choosing one that suits your needs.

In this article:

How permanent life insurance works
Types of permanent life insurance
Key Benefits of Permanent Life Insurance
Cost Comparison: permanent vs term
The tax benefits of permanent life insurance
How permanent life insurance builds cash value
How to choose the right permanent life insurance policy for you
Frequently asked questions (FAQs)

Whether planning for retirement or securing your family’s future, understanding the basics of life insurance policies can help you make an informed decision. For example, if you’re seeking life insurance that helps provide lifetime protection, permanent life insurance might be the solution.

Besides the death benefit you can leave your loved ones, permanent life insurance also provides a cash value that is accessible while you are alive. However, the death benefit reduces if you use the cash value.

How permanent life insurance works

Permanent life insurance provides lifelong coverage, with a death benefit payable to beneficiaries. It also builds cash value that can be accessed while the policyholder is still alive. It’s important to note that using the cash value of your policy may reduce the death benefit. Because of this, permanent policies can be used as supplemental income, savings or investment vehicles and protection tools.

Types of permanent life insurance

There are several permanent types of life insurance policies to choose from. The most common types of permanent life insurance are whole life and universal life. Each option involves various costs, flexibility, and risk considerations.

Whole life insurance

Whole life insurance offers long-term financial protection while building cash value over time.

Highlights of whole life insurance:

Fixed premiums for the life of the policy
Guaranteed death benefit to help protect your beneficiaries
Tax-deferred cash value growth with potential dividends

Whole life insurance may cost more initially because of these guarantees, making it ideal for those who prioritize predictability and the ability to accumulate cash value.

Universal life insurance

Universal life insurance is considered to be a more flexible life insurance option. It allows you to adjust your premium payments and death benefits within certain limits. Premiums you pay increase the cash value of the policy. Interest is credited based on the amount of the cash value, and charges for administrative expenses and the cost of insurance are deducted from the cash value. As long as the cash value is sufficient to cover the charges, the policy stays in force, even if you adjust or skip premium payments.

Indexed universal life is a type of universal life that has potential for greater growth as the amount of interest credited to the cash value is based on the performance of a stock or bond index (such as the S&P 500), but is never less than 0. These policies typically have a cap rate, which is the maximum interest rate that can be credited to your policy’s cash value based on the performance of the chosen index (such as the S&P 500).

Variable universal life is a type of universal life where the policyholder determines how the cash value is invested. Part or all of the cash value can be invested into mutual funds.

Highlights of universal life:

Flexible premiums you can adjust within policy limits
Adjustable death benefit within limits to align with changing financial goals
Cash value that grows tax-deferred with minimum guarantees

Universal life appeals to those needing adaptable insurance for varying income, family needs, or financial goals.

Key benefits of permanent life insurance types

These different types of permanent life insurance have a similar overall benefit. They all offer lifetime coverage while building cash value. Each type has its own strengths, depending on your circumstances and what you want from a policy.

Whole life insurance is predictable, with fixed premiums, a guaranteed death benefit and steady cash value growth.
Universal life insurance offers flexibility with adjustable death benefits, flexible premiums within limits and cash value that can grow over time.

Cost comparison: Permanent vs. term life insurance

The cost of permanent life insurance is usually higher than term life because it provides longer (lifetime) coverage while building cash value. While term life focuses solely on protecting your loved ones for a set period, usually between 10, 15, 20, or 30 years. Permanent policies, on the other hand, combine lifelong protection with potential savings growth. Comparing the costs and benefits of each, while also assessing your individual needs, can help you choose the right policy for your budget and financial goals.

Whole life insurance offers stable premiums and a guaranteed death benefit, but it’s typically more expensive due to its guarantees and the way its cash value grows.
Universal life insurance offers more flexible life insurance with adjustable premiums within limits, and the cost of universal life insurance varies depending on how you structure your payments and how the policy performs.
Term life insurance is typically less expensive upfront because it covers only a set period and does not build cash value.

Term policies can make sense for short-term needs, such as providing coverage while you have a family to support. The cost of permanent life insurance reflects the lifelong coverage and financial flexibility that whole life and universal life policies offer.

The tax benefits of permanent life insurance

Permanent policies offer the following life insurance tax advantages:

Cash value growth is tax-deferred, as long as it stays inside the policy
Death benefits are generally income tax-free, so beneficiaries won’t have to pay tax on what they receive

These significant tax benefits make permanent life insurance a potentially valuable estate planning tool, helping your loved ones after you’ve gone with minimal final expenses.

How permanent life insurance builds cash value

Cash value of life insurance builds differently depending on the product, but always through a portion of the premiums being paid. As a policyholder, you can access it during your lifetime, for example, as a loan or retirement income.

Here’s how cash value accumulates in permanent life insurance by type:

With whole life insurance, the cash value grows at a guaranteed rate set by the insurer and may include dividends.
The cash value of universal life insurance earns interest linked to current rates, often with a guaranteed minimum.
In an index universal life policy, interest credited to the account is based on the performance of an index, such as the S&P 500, but it is subject to a cap on the maximum credited rate and a floor of 0%, meaning you won’t lose value due to negative index returns. For variable universal life, the cash value is directly invested into mutual funds of your choice.

How to choose the right permanent life insurance policy for you

Choosing permanent life insurance is a decision that depends on the individual’s needs, as well as budget, financial goals and risk appetite.

These questions can guide you:

Do you want stable, predictable premiums and guaranteed growth? Consider whole life insurance .
Do you need the option to change payments or coverage as income shifts? Consider universal life insurance .

Think about how you plan to use the cash value. Some people treat it as an emergency fund; others, as a source of supplemental retirement income or to help fund large expenses or legacy planning. The best permanent life insurance is the one that best matches your goals.

Make sure you get the right level of coverage.

You can determine your life insurance needs with our final expense calculator.

Frequently asked questions (FAQs)

What is the difference between whole life and universal life insurance?

Whole life insurance has fixed premiums, a guaranteed death benefit and steady cash value growth. Universal life insurance offers more flexibility; you can adjust your premiums and death benefit over time. Both provide lifelong coverage, but universal life gives you more control, while whole life gives you more predictability.

Can I switch from universal life insurance to whole life?

Switching from universal life to whole life isn’t usually straightforward. Because they’re structured differently, most insurers require you to apply for a new whole life policy rather than convert your existing universal policy. If you’re considering the switch, it’s smart to compare costs and benefits before making the move.

What happens if I miss a premium payment on my permanent life insurance policy

For Whole Life insurance, if you stop paying premiums, the policy could lapse after a grace period. However, many policies let you use your cash value to keep some coverage, such as converting to a smaller paid-up policy or temporary term coverage.

For Universal Life insurance, the policy is more flexible. If you stop paying premiums, the insurer will automatically deduct the cost of insurance and fees from the cash value to keep the policy active. The policy remains in force as long as there is sufficient cash value to cover these charges. If the cash value is depleted, the policy will lapse unless additional premiums are paid.

Reviewed by: Andrew Berger, Mutual of Omaha VP and Actuary

Andrew Berger brings extensive leadership experience in the life insurance industry, with a primary focus on product development and innovation. He earned his bachelor’s degree from Bentley University. He is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries.

Disclosures:

Mutual of Omaha Investor Services, Inc. and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation.

Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc. a Registered Broker/ Dealer. Member FINRA/SIPC. Investment advisor representatives offer advisory services through Mutual of Omaha Investor Services, Inc., a SEC Registered Investment Advisory Firm.

Life insurance and annuities are underwritten by United of Omaha Life Insurance Company, Mutual of Omaha Plaza, Omaha, NE 68175. United of Omaha is licensed nationwide except in New York and does not solicit business in New York. In New York, Companion Life Insurance Company, Melville, NY 11747 underwrites life insurance and annuities. Each company is responsible for its own financial and contractual obligations. Products and services may not be available in all states. Policy form ICC18L198P or state equivalent. In FL, D787LFL19P, In NY, 1002Y-0119.

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