For most people, term life insurance makes sense. You pay a certain amount for a certain period of time; if you die in that time frame, your beneficiaries collect from the insurer.
However, there are times when permanent life insurance makes sense. If you know you’ll need life insurance for the long term, you may want to avoid term insurance, where the premiums keep escalating as you grow older.
With permanent insurance, premiums are fixed. You pay much more, than you’d pay for term insurance, but you also get an investment account known as the cash value. As you grow older, the cash value can be tapped to pay for increasing life insurance costs.
Today, though, the cash value in most permanent insurance policies won’t grow rapidly. Typically, growth is tied to interest rates or bond yields, which are near historic lows.
In response, some insurers offer "indexed universal" life insurance. The cash value is tied to a stock index, such as the S&P 500, so the cash value might grow by 10% or more in some years. Such policies may have a "zero floor," meaning the cash value won’t shrink if stocks tumble.
If you think you’ll need permanent life insurance and you are truly in for the long term, indexed universal life policies may be worth considering.