What is Permanent Life Insurance

Permanent life insurance provides financial protection for your loved ones when you pass on. There are two types of permanent life insurance: whole life insurance and universal life insurance.  Permanent life insurance policies come with a death benefit; as well as; hold cash value for the policy holder. The death benefit associated with permanent life insurance policies goes to the beneficiaries when the policy holder passes away. Many people invest in permanent life insurance policies, so that their loved ones can inherit funds that can be used for a variety of expenses from housing to education. The cash value associated with a permanent life insurance policy is considered a separate savings that you can access while still alive. Permanent life insurance is active from the time you buy your policy to the day you pass away, as long as you continue to make premium payments.

What is the difference between permanent life insurance and term life insurance policies?  

There is certainty that comes with permanent life insurance that you can’t get with term life insurance. With permanent life insurance, the policy is active until you pass on, versus term life insurance that is only active for the specific term you choose. If you outlive the term life policy, there is no death benefit paid out. Term life insurance policies do not have a cash benefit. You cannot borrow against the money you invest in a term life insurance policy. Term life insurance is the more popular choice, because of its flexibility and cost. Permanent life insurance is significantly more expensive than term life insurance. In some cases, you can convert a term life insurance policy to a permanent one.

Features of Permanent Life Insurance Policies

The most interesting feature of permanent life insurance is the savings component or cash value. Cash value grows over time as you make premium payments. You can borrow against your permanent life insurance policy’s cash value. The cash value of your policy differs from the death benefit. If you decide to cancel your permanent life insurance policy, you will receive the accrued cash value. It’s important to review your policy because there may be a fee for early cancellation.

Types of Permanent Life Insurance

All permanent life insurance policies share commonalities including the fact that they last while the policy holder is alive, but there are some nuances between policy types. Here is more information on the common forms of permanent life insurance.

Whole Life Insurance

This is the most common kind of permanent life insurance, according to the Insurance Information Institute. Whole life insurance policies have a guaranteed rate of return, which means that the cash value of the policy is guaranteed to earn at least some interest. In addition, there are some whole life insurance policies that also pay out dividends. You could use your dividends to reduce your premiums, receive them in cash payments, or leave them in your policy to earn more interest.

Universal Life Insurance

If you are looking for more flexibility, you might consider a Universal Life Insurance policy. A universal policy might allow you to increase your death benefit or reduce your monthly premiums after you have accumulated a certain amount of cash value in the policy. One downside, is that your policy could lapse if you use up your cash value by applying it to premium payments.

Variable Universal Life Insurance

If you are looking for an investment, this type of policy may be for you. Variable Universal Life Insurance policies include investment options that can help you increase the cash value of your policy. The downside is that you could also reduce the policy’s cash value and the death benefit.

Indexed Universal Life Insurance

This type of permanent life insurance policy has no fixed interest rate on your cash value. This could lead to greater gains or loses from your investment. Some universal life policies include a minimum interest rate guaranteed.

Frequently Asked Questions About Permanent Life Insurance

Should I get permanent life insurance?

While term life insurance is more common, permanent life insurance policies can make sense for people with complex financial situations like:

• Those who earn a high-income and need tax-deferred savings
• People who special needs children or lifelong dependents
• People with a high net-worth that are looking to build an inheritance for beneficiaries
• Senior aged people who have outlived a term policies and still want substantial coverage