Permanent Life Insurance
Coverage for Life, Usually with Cash Value
Permanent life insurance is best known for providing lifelong coverage and cash accumulation. Premiums are usually higher and continue for a longer time period. These policies generally are for needs such as final expenses, estate planning and tax-deferred income. Permanent life insurance comes in two basic forms: whole life and universal life.
Whole Life
Whole life products are all about guarantees. These products provide guaranteed coverage, guaranteed cash values and guaranteed premiums. Because of the strong guarantees, these products are often the most expensive. Whole life policy owners can request loans against the tax-deferred cash value. That cash can be used in an emergency and repaid later or simply subtracted from the death benefit of the policy. They also usually feature these additional policy value options:
- Automatic premium loans – uses funds from the cash value to pay any overdue premiums
- Extended term insurance – premiums cease and the policy’s cash value is used to keep the same death benefit in force for whatever term the cash value permits
- Reduced paid-up insurance – premiums cease and the policy’s cash value is used to keep a reduced death benefit in force for an amount the cash value will purchase
Universal Life
Flexibility is the biggest advantage of universal life policies. The cash value grows based on an interest rate or potentially an investment component. Funds can be taken out as loans or withdrawals; however, the policy owner may have to pay a penalty for withdrawals in the early years of the policy. Another advantage of universal life policies is that the premium amounts and death benefits can be changed to suit your needs.
The Decision
Based on each unique situation, term and permanent life insurance can meet a broad range of life insurance needs. Knowing what those needs are and developing a plan to address them can be a daunting task, but a skilled insurance professional is an invaluable resource. Take the time to review product types with an independent agent to better understand the pros and cons of different types of life insurance.