Permanent Life Insurance: What Does a Permanent Policy Include?
Simply put, a permanent policy provides lifetime coverage.
There are two primary types of permanent insurance: Whole Life and Universal Life. And while you can combine the two in various ways to meet your individual needs, for the sake of simplicity, let’s establish a basic understanding of Whole and Universal life insurance before trying to mix them.
In addition to lifetime coverage and a death benefit, each policy type generates cash value you can access when you need it. Both require a health screening.
What sets them apart is how they manage the cash value they generate.
1st Type of Permanent Life Insurance: Whole Life
Whole Life is by far the most expensive option available. It offers a fixed-rate premium and guaranteed death benefit, meaning the amount you pay every month and the amount your beneficiaries receive upon your passing will never change.
It also generates cash value based on your monthly premium. The premium the insurance company charges is higher than the cost of the policy itself. The insurance company invests the difference in its financial portfolio, earning you money based on its performance.
2nd Type of Permanent Insurance: Universal Life
Universal insurance is slightly cheaper and more flexible. With a Universal policy, the amounts you pay for your death benefit and premium payments can change due to the fact that your policy’s cash value is determined by the interest your payment generates, rather than your insurance company’s portfolio performance. And, as we all know, interest rates fluctuate, which can work for or against you.
If my Permanent Policy Generates Cash Value, How Can I Use It?
You can use your generated cash value for a number of things, including:
- Home purchases
- College tuition
- Retirement funds
- Charity donations
- Paying your premium
- Increasing your death benefit
- Paying off personal or business debts
- Collateral for bank loans
Best of all, withdrawals are tax-free up to several million dollars. However, taking the money out of a premium policy may decrease the death benefit. And if you die before you pay off a loan you made against your insurance policy, your heirs will be responsible for it.
The wealth-building benefit of permanent life insurance is tempting. But not everyone can afford permanent life insurance rates. If you’re young and have the income, investing in a permanent policy may make sense. You can pay a higher premium at the beginning of the policy, then once it’s paid off, you can invest in other things and never worry about making a premium payment again.
Sounds Good. But I Simply Can’t Afford a Permanent Policy Right Now.
Consider a term life insurance policy, then. It’s your least expensive option because you pay only for what you need, only for as long as you think you will need it. You pay a fixed premium and your family receives a fixed death benefit—without locking yourself into a higher premium. Because once you lapse, you lose.
You can always convert to a permanent policy when you have the income to afford it. And when you convert a term policy to a permanent one you avoid the health screening a permanent policy generally requires. This conversion benefit is particularly handy when you consider how our earning power tends to increase while our health tends to decrease as we age. Plus, with a low, fixed-level premium, you can invest your money in other ways and buy that permanent policy sooner.
Save those high life insurance premiums and medical exams for later. Get a term life quote today.