How does permanent life insurance work?
Permanent Life Insurance
- Permanent life insurance can provide coverage for your entire life.
- Unlike term life - Permanent policies will not expire.
- Permanent life insurance can grow cash value.
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Permanent Life Insurance
Pros
Permanent life provides lifetime coverage and builds cash value
Cons
Permanent policies can be more expensive when compared to term
Advice
Use an independent life agent to shop all your permanent life options
What is Permanent Life Insurance?
What is permanent life insurance and is it the right policy for you and your coverage goals? Permanent life insurance is designed to protect you for your entire life. However, there are many types of permanent life insurance to choose from. The most common type of permanent life insurance is called Whole Life, but life insurance shoppers may not be aware of some of these other permanent options.
Let’s get familiar with the other permanent life insurance types and find out which one best meets your coverage goals.
Types of Permanent Life Insurance
Table of Contents
What is permanent life insurance and how does it work?
How does permanent life insurance work and what exactly is it? This is the first question that needs to be addressed. You’ll then be able to decide if a permanent life policy will be right for you.
Permanent life insurance definition
A permanent life insurance policy is any cash value type of life insurance that will provide the insured coverage to age 100. Coverage to age 100 is the typical age that permanent policies are designed for, but other ages are available.
Permanent life insurance policies will typically have level premiums that need to be paid in order to keep the policy in force. There are some situations where life insurance premiums can be stopped or reduced- but shouldn’t be counted on.
Permanent policies generally accumulate cash value that is tax deferred. A permanent policy allows you to borrow against the life insurance policy’s cash value by withdrawing a portion or all of the cash value growth.
Cash Value
One of the biggest differences of permanent life compared to term life insurance is the cash value feature.
Commonly known as cash value or cash surrender value because permanent policies build up cash over time and provide your beneficiaries a death benefit. The cash value will be accumulated on a tax deferred basis.
You can borrow from the cash value for any purpose that you need. By borrowing from the cash value of your policy, you’re using it as collateral at a rate that relatively low compared to borrowing from traditional financial institutions. You have to repay your loans with interest or the beneficiary of your policy will receive a death benefit that’s reduced. You can also use the cash value of your permanent policy to pay for your premiums.
Should I buy permanent life insurance?
A couple questions you may be asking are:
- Is permanent life insurance a good investment?
- Are there any permanent life insurance tax benefits?
Some shoppers are looking for permanent life insurance as part of a retirement savings strategy or investment vehicle. For most life insurance shoppers, there are more appropriate and better options to explore first when it comes to retirement income.
However, if you’re in a high income bracket and have maxed out your IRA options and 401(k) plans- a permanent life insurance policy may make sense. There are a few other reasons to have a permanent life insurance policy.
For example, to avoid estate tax issue, liquidity by using a business life insurance policy, or for a dependent / disabled child.
Permanent life insurance quote
Get instant permanent life insurance quotes. This life insurance calculator will provide you instant Whole Life insurance rates. You’ll be able to compare from several top carriers. *Not all companies provide online rates. Please contact us if you’d like additional Whole Life quotes.
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Popular types of permanent life insurance
Here are the 5 most common types of permanent life insurance:
1. Whole Life Insurance
Whole life insurance is also called ordinary life or straight life insurance. Whole life is the original and first type of permanent life insurance. Whole life is also the most popular in force life insurance policy used today. Smaller whole life policies are called Final Expense policies which typically have face amounts up to $25,000.
Want to learn more? Read about the best cash value whole life insurance companies in the USA.
2. Universal Life Insurance
A relatively new type of permanent life insurance, universal life came around in the 1980s. Universal life insurance was presented as a flexible policy because it provides you the flexibility of the the timing and amount of premium payments as well as the benefit amount can be adjusted.
With UL, you can lower your benefit amount at anytime and also increase it, but you’ll have to show evidence of insurability.
3. Guaranteed Universal Life
An even newer product has come along called Guaranteed Universal Life insurance. Also known by several names such as “Lifetime Term” and “No Lapse Universal Life”– a GUL policy is different than a traditional UL policy.
With a traditional UL policy, you can run the risk of lapsing your policy with certain scenarios such as insurance costs rising or interest rates falling. With Guaranteed Universal Life, you’re getting a guarantee that the policy won’t lapse even when those scenarios occur.
4. Indexed Universal Life
Index Universal Life is similar to universal life, but with a few differences that aren’t found in a traditional UL policy. Indexed Universal Life provides you the option to manage your cash value amounts to either a equity index account or a fixed account.
If you choose a index account, you have several indexes to pick from like the Nasdaq 100 and the S&P 500. You’ll be able to decide what percentage of your indexed policy’s funds that you want allocated to indexed and fixed portions.
5. Variable Life Insurance
With Variable Life insurance and Variable Universal Life, you’ll receive a death benefit and cash value growth that varies by the performances of an investment portfolio. These VUL policies are extremely complex and not recommended for the majority of consumers.
Lesser known permanent life insurance policies
Now that we covered some of the popular permanent policies, let’s look at some that are not as well known.
Endowment Life Insurance
An Endowment life insurance policy’s goal is to grow cash value so it can be used in such a way as to put money aside for long term goals. One of the most common goals of Endowment life insurance is for college tuition and education. If death occurs before the life insurance policy matures, the death benefit is paid to the beneficiary for the entire coverage amount.
Single Premium Whole Life
Single Premium Whole Life insurance policies (SPWL) are a type of whole life policy that never caught on with most shoppers. The main reason is probably due to the very high initial costs that often approaches ½ of the initial benefit amount for someone at age thirty five. With the SPWL, you will pay one premium to the life insurance company that will credit the current rate of interest to the fund value.
Limited Pay Whole Life Insurance
With a Limited Pay Whole Life insurance policy will pay the benefit amount when you die, but the life insurance premium payments are compressed to a much shorter premium payment period. When you reach the end of the premium payment period, your policy will be paid up for the entire benefit amount.
This limited period can be shown either as “Paid up at Age__” or by the amount of years that the premiums have to be paid. For example, “Paid up at Age 70” or “20 Pay Life”.
Joint or Survivorship Life Insurance
With a Joint or Survivorship life insurance policy, the policy’s benefits will not be paid until the 2nd to die or survivor passes away. This is typically a spouse or business partner. Joint life insurance policies are usually for couples who have a high net worth with sizable assets. It’s goal is to make sure that the biggest part of your estate is left to your heirs by paying for debts or estate taxes.
Adjustable Life Insurance
Adjustable life insurance is a type of permanent life insurance with flexible premium that has cash value growth and an adjustable death benefit. Even though the policy is flexible in choosing the plan of insurance, you can’t change whenever you want. Changes are typically allowed only at certain times and you need to inform the insurer in advance.
Bottom line
You can get instant permanent life insurance quotes right here. Rates are the same no matter if you shop direct with the carrier or with a broker like Life Insurance Blog. Get a term life insurance quote on line by simply selecting any of the GET QUOTES buttons found throughout this article.
You can also give us a call and we’ll give you a customized term life insurance quote and answer all of your life insurance questions. To learn more about life insurance, make sure to visit our page Life Insurance 101 or find out how to customize your policy on our Life Insurance Riders page.
