Permanent Life Insurance Explained

What is Permanent Life Insurance?

Permanent life insurance provides long-term insurance coverage, which will continue as long as the premiums are paid. It is a type of life insurance product that has a savings component, known as the ‘cash value’ or ‘surrender value’ that can be used for your own personal needs. For this reason, premium rates for permanent life insurance policies are much higher compared to term life insurance.

Permanent Life Insurance is no longer offered in Australia. You may wish to compare Term Life Insurance options instead.

Advantages of Permanent Life Insurance as an Investment

Some may prefer permanent life insurance plans to other types of cover for the following reasons:

  • Lifelong protection: Permanent life insurance provides cover against risk for your entire life, so at the end of your policy, either your cash value or death benefit will be paid by the insurance provider to your beneficiaries.
  • Cash value as equity: It builds cash value over the life of the policy that the policyholder can access to use and spend on anything they choose when they need it. For example, when you have owned your policy and paid the premiums for a number of years, and your children are no longer financially dependent on you, you may choose to use the cash value for you to spend or invest.
  • Collateral against a loan: The cash value can be used as guarantee if you take out a loan or when borrowing money, for example when getting a mortgage to buy your home.
  • Flexible premiums: Permanent life insurance policies may be more flexible than term life, in which you are able to adjust your payment terms, the sum-insured and allocation of the investment portions for some type of permanent life insurance policies.

Different Types of Permanent Life Insurance Plans

There are four different types of permanent life insurance policies:

  • Whole life or ordinary life insurance: is a type of permanent life insurance plan that is designed to provide life cover and an investment component for the policyholder. Whole life provides a guaranteed amount of death benefit with a level premium, so the rates you pay won’t increase in future. A portion of your premium is used to fund your death cover, with the rest allocated to increase the cash value of your policy.
  • Variable life insurance: is a flexible type of permanent life insurance policy that allows you to modify your terms and investment options. You can adjust the frequency and the premium you pay in each period. The policy also includes a savings component that you can use to buy stocks or funds. The cash value and death benefit will both be influenced by the financing option you have chosen and the performance of your investment options.
  • Universal life insurance: has flexible premiums that you can adjust to suit your financial situation at the time and you can pay them at any time that is suitable for you. For example, you can opt for lower payments if you have a tight budget, or pay higher premiums when you can afford it. It is a more affordable type of permanent life insurance policy compared to whole life insurance, providing a cash value as well as death benefit.
  • Variable universal life insurance: has many features that allow greater flexibility for people who are looking for maximum control on their permanent life insurance policy. With variable universal life insurance, you can adjust the amount of your life cover as you see fit. You can also increase the cash value of your policy by making additional payments. With variable universal life insurance, you also get to benefit from the advantages of having both variable and universal insurance policies.

How Can I Obtain Permanent Life Insurance Policy in Australia?

Permanent life insurance is no longer offered in Australia and has now been replaced with term life insurance.

Term life insurance is a cost-effective insurance plan that provides coverage for death and terminal illness. You can tailor your term life policy with different features, while also providing you with the flexibility in changing your cover when your circumstances change. Note that since term life does not have a cash value component, the policy cannot be cancelled for a cash payment.

Some of the key features of term life insurance include:

  • Affordable: Term life insurance is generally more affordable compared to other types of life insurance (TPD, trauma or income protection insurance). When you apply at a young age, the premiums you pay will be quite low since you are likely to be in better health, thus considered to pose lower risk to your insurance provider.
  • Joint cover: You have the option to include coverage for your spouse/partner on your policy and you will also be eligible for a discount on your premiums.
  • Child cover: Many term life policies offer additional cover for your children against serious illness or injury at an affordable rate.
  • Guaranteed future insurability: Your needs will change over time and it is important that your life insurance reflects these changing circumstances. With term life insurance, you have the flexibility to adjust your cover amount when a significant life event occurs without having to provide further medical evidence.
  • Trauma and TPD rider options: You can include cover against temporary and permanent disability by adding trauma and/or TPD rider onto your existing term life policy. You can benefit from comprehensive cover, without breaking your budget.
  • Choice of stepped or level premiums: If you want to lock in your premium rates, similar to that of permanent life insurance, you can also do so with your term life cover by opting for a level premium. However, if you are younger, level premiums can be quite expensive to start with. You can choose stepped premiums instead, which start off quite low and increase as you age.

Looking to take out Term Life Insurance?

You may wish to speak to an insurance adviser if you are looking for advice on term life policies that are most suited to your needs. Insurance consultants also have the knowledge of the market and the expertise to find the best deal on your policy with competitive prices.

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Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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Maurice Thach

An insurance researcher and writer for who loves finding an answer to the question "Am I covered for ________?" Maurice has also completed a Tier 1 Life Insurance and a Tier 2 General Insurance Certification under ASIC's Regulatory Guide 146. This means he can confidently provide general advice for life insurance and non-life insurance products.

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