Permanent Life Insurance

permanent-life-insurance

Permanent Life Insurance

Permanent life insurance provides lifelong protection and is known by a variety of names. These policies are designed and priced for you to keep over a long period of time. If you don’t intend to keep the policy for the long term, it could be the wrong type of insurance for you.

Most permanent policies including whole, ordinary, universal, adjustable and variable life have a feature known as “cash value” or “cash surrender value.” This feature, which is not found in most term insurance policies, provides you with some options:

What are the Types of Permanent Insurance?

There are many different types of permanent insurance. The major ones are described below:

Whole Life or Ordinary Life

  • This was the most common type of permanent life insurance. It is Life insurance that is kept in force for a person’s whole life as long as the scheduled premiums are maintained. All Whole Life policies build up cash values. Most Whole Life policies are guaranteed as long as the scheduled premiums are maintained. The variable in a whole life policy is the dividend which could vary depending on how well the investments and other business criteria of the insurance company are doing. If the company is doing well and the policies are not experiencing a higher mortality than projected, values are paid back to the policyholder in the form of dividends. Policyholders can use the cash from dividends in many ways. It can be used in three main areas: to lower premiums, to purchase more insurance or to pay for term insurance.
  • Universal Life or Adjustable Life
  • This variation of permanent insurance allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You also can reduce or increase the amount of the death benefit more easily than under a traditional whole life policy. (To increase your death benefit, you usually will be required to furnish the insurance company with satisfactory evidence of your continued good health.)(Decreasing does not lower premiums.)
  • Advantages and Disadvantages of Permanent Insurance
  • Advantages
  • As long as the necessary premiums are paid, protection is guaranteed for your entire life or to a specific age / maturity.
  • Premium costs can be fixed or flexible to meet personal financial needs.(Loans, withdrawals and other transactions may affect the premiums required)
  • Policy accumulates a cash value that grows on a tax-deferred basis that you can borrow against. (Loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.) You can borrow against the policy’s cash surrender value to pay premiums or use the cash surrender value to provide paid-up insurance.
  • The policy’s cash surrender value can be surrendered — in total or in part — for cash or converted into an annuity. (An annuity is an insurance product that provides an income for a person’s life-time or for a specific period of time.)
  • Disadvantages
  • Required premium levels may make it hard to buy enough protection.
  • It may be more costly than term insurance if you don’t keep it long enough.