Last Updated on:

May 28, 2021

permanent life insurance

Have you been staying away from permanent life insurance just because you don’t know how they work? Do you want to know the ways in which you can make the most of your permanent life insurance policy? 

If yes, then read on and understand how you can put insurance plans to work for you.

risk insurance

There are many things we take for granted. We have a family, a job, a roof above our heads and food on the table. We are aware that in times of need or emergency, we can take comfort in the fact that we have insurance.

The value of a good insurance plan can never be ignored. It is the one policy that keeps you safe from financial loss due to any unforeseen circumstance.

There are different types of permanent life insurance policy available and you have to choose one that fits your requirement and budget. The most important aspect is the cash value that an insurance plan offers.

What is Cash Value, and Why Does it Matter?

Permanent life insurance has an investment aspect  that encourages policyholders to accumulate cash value. If you have enough money or pension, you should buy this type of insurance.  

You're paying the money for the insurance policy. The money is divided into insurance and cash value. 

Permanent life insurance policies always have two components. Not all the money is for premiums. Cash value simply means savings kept in investment funds and invested in the market.

Happy rich banker celebrating income growth

Your money is put into a savings account that is tax-deferred, earns interest, and grows over time. 

Depending on each policy, your insurer determines the rate for this tax-deferred account. Tax-deferred means earning interest, dividends, or capital gains while earning your savings.

There is no income tax to be paid as long as no withdrawal is done.

The calculation for a cash value after 20 years

Is 20 year term life insurance worth it? At the age of 25, you purchase a Permanent life insurance with a $500 premium per month, $6,000 Annually.


Upon 30 years old

Upon 35 years old

Upon 45 years old

Total Paid




Total Savings




After 20 years, your cash value has accumulated $116,305.20 before tax.

Is insurance a form of investment?

Insurance provides good protection against the possibility of losses that can financially burden you. Apart from your property, automotive, life protection, and medical costs. 

Basic RGB

Auto insurance to ensure that you never face financial problems in case you are a victim of an accident. Life insurance policies can be considered a part of your retirement savings.

In tax-deferred retirement accounts, the fund manager manages the cash value. You earn interest, dividends, and capital gains and your savings continue to grow until you retire.


Filing Status

Standard Deduction

Senior Bonus

Total Deduction





Married filing jointly or qualified widow(er)


$1,300 per senior spouse

$25,700 or $27,000

Married filing separately




Head of household




permanent life insurance vs investing

Protection vs investment

You are buying protection against the chance of losses that can burden you financially when buying an insurance policy.

Except for Permanent life insurance with a portion of cash value saved in tax-deferred accounts.


You are the rightful owner of the specific asset when buying real estate, stocks, or mutual funds. Which implies that you can resell or transfer ownership of the asset later.

With insurance, after you stop paying your insurance premiums, the insurance company stops providing coverage.

How Insurance Plans Help Protect you and your assets?

When you're insured, it means that you're protected and have a safety net. Insurance applies to a number of different types of risk and gives businesses an extra layer of security against loss. 


Insurance can also protect you from theft by covering your losses. for example, if you lose a cellphone. Whether it's toilet paper or a smartphone, there are many ways insurance can help to safeguard you from expensive mishaps and unexpected expenses.

What insurance companies do is pool in your money to an insurance company with many others while paying out cash whenever a member suffers a loss, damage, or theft

The collected pool proceeds are used to pay claims whenever a member experiences financial loss. Insurance provides protection against the chance of losses that can financially overwhelm you.

If you don't have enough savings, you can use insurance as a good safeguard. Life, health, home and car insurance are available in a variety of forms.







 Lump-sum payment to upon the insured's death.

Protect you from the high costs of healthcare

covers losses and damages to an individual's residence

Protects you against financial loss in the event of an accident or theft

what is the difference between term and permanent life insurance?

Whole Life Insurance

Is a permanent life insurance with cash value. The premium charge is divided into insurance and cash value security. For the entire lifespan, insurance cover is insured, the cash value is saved, and growing in a tax-deferred account.

After retirement or as a monetary reward upon death, you’ll receive the return of the cash value that may be in the annuity (dividends).


Term Life Insurance

Term life insurance protects the insured for insurance protection but provides tax-deferred accounts with no cash value for growth.

You're paying lower premiums than premiums for life. Term life insurance covers insurance coverage for a fixed duration of 10 to 30 years. Death benefits provide cash compensation regardless of the mortality of the insured individual being covered.

You have 3 options after the period has ended, which are to extend the policy into a new term, transfer the policy to permanent coverage, or allow the policy to end.

life insurance illusion

Variable Life Insurance

In a variable life insurance policy, the premiums you pay are split into two parts. The payable portion is the insurance coverage and will be paid in case of death or disability. 

The other half of the premium is called cash value, which accumulates as interest to be used later.

In variable life insurance, the cash value can only increase with investment performance, but it won't be affected by market performance. Good investment portfolio performance can increase your cash value and vice versa.

Universal life insurance

In life insurance there are two different kinds of coverage, namely whole life insurance and universal insurance.

Universal life insurance is the new term for permanent life insurance. With it, you can always opt out of making regular premium payments if you desire to do so.

This type of policy allows you to get a cash payout at any time during your lifespan. The cash payment option is just an extra benefit that accompanies the whole life coverage.

Pros and Cons of Permanent Life Insurance

1.Savings kept for tax-deferred growth

Cash value is important because it's a form of savings that provides the same benefits whether you choose to invest once, periodically, or annually.

Using permanent life insurance as an investment vehicle, ownership of cash value can be structured in such a way as to take advantage of growth tax deferral.

2. Borrow against the cash value when needed.

When it comes to time, you are planning to buy a house or pay for your children's college fees but run out of cash.

You can opt to borrow against your Permanent Life Insurance policy for the extra cash, which is tax-free.

3.You still can get Cash Surrender Value

 As you are paying money to your policy, the money is split into insurance protection and cash value.

When you decide to cancel your policy, you will get a refund on the cash value. The cash value is also known as "cash value," "surrender value," and "policyholder's equity.

4. Medical costs are covered when you get sick.

During the later stages of your life, if specified conditions such as heart attack, stroke, invasive cancer, or end-stage renal failure.

You can opt to cash out 25% to 100% of the death benefit of your permanent life insurance policy to pay your medical bills.

who needs permanent life insurance?

In a nutshell, life insurance covers the risk that you might not be around to make payments on your home or car loans.


Life insurance also protects loved ones in case of accidental death. Financial planners recommend you purchase a life insurance policy when you start planning for a family or when making major purchases.

When you buy life insurance, you want to make sure that you stay financially stable amidst the many bills and responsibilities of life. You also want to protect your family from the burden of financial instability.

This is why it's important to start saving up right away. You would do well to start saving for medical insurance before you get sick.

About the author 

Income Junctions

Business Idea & Investing for Solopreneur Income Junctions helps you to find ways to make money online, get inspiration and advice to starting a business on your own, and investing tips for solopreneur.

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