The simplest type of permanent life insurance coverage is whole life. With this type of coverage, the premium amount is locked in and will remain the same throughout the entire lifetime of the policy.

This can be helpful for those who need to stick to a budget. It also means that if a person purchases a whole life policy at a very young age, they will still pay the same amount of premium when they get older – regardless of advancing age, or even an adverse health issue.

In some cases, where a person’s pre-existing conditions require the individual to buy high-risk life insurance, some graded whole life policies are the only option.

The cash that is in the cash value component of a whole life insurance policy is allowed to grow on a tax-deferred basis. This means that the gain on these funds will not be taxed until or unless they are withdrawn – allowing them to compound exponentially over time.

At first, the cash in a whole life insurance policy will grow slowly. This is because the majority of the early premium dollars will go towards paying the agent’s commission and the insurance costs. However, over the years, the cash in a whole life policy can steadily grow, often with a minimum guaranteed rate of return.

Some whole life insurance policies will even provide dividends to their policyholders. Because these are considered to be a return of premium to the policyholder, they are also not taxed. Dividends can also help the cash value in a policy grow significantly – although they are never guaranteed.

Universal life insurance: Another form of permanent coverage is universal life insurance. Universal life insurance has a cash value determined by short-term interest rates versus the stated long-term rate of a whole life policy.  Premium payments in excess of the cost of insurance are added to the policyholder’s interest-bearing account.  Although interest rates will fluctuate, it cannot fall below the policy’s stated guaranteed interest rate.  Consult with someone knowledgeable about financial planning before choosing a universal life insurance policy.

This type of life insurance also provides a death benefit and a cash value component where the funds are allowed to grow tax-deferred.

Universal life insurance is more flexible than whole life coverage, though. This is because the policyholder is allowed – within certain guidelines – to choose how much of his or her premium dollars will go towards the policy’s death benefit, and how much will go towards the policy’s cash value.

Because universal life is a permanent life insurance policy, the policyholder will have access to their cash-value account. So, just as with a whole life plan, the cash can be borrowed or withdrawn for any reason – including paying off debt, supplementing retirement income, or even going on a vacation.

There is also an Indexed Universal life insurance policy available that will can aggressively grow your cash value in the policy over time, but you have to be aware of the disadvantages of this type as well.