What is permanent life insurance?

What is permanent life insurance and how does it work? Permanent life insurance is a type of life insurance that will provide you life long protection. Permanent life policies carry the ability to accumulate cash value on a tax deferred basis.

What is the difference between term and permanent life insurance?

• Permanent life policies stay with you for life, as long as you continue to pay your premium. 

• Term insurance covers you for a set amount of time. Term insurance policies also do not carry the ability to accumulate a cash value. 

Cash Value;

Cash value or cash surrender value is a major characteristic of permanent life insurance. It’s also one of the distinguishing factors that makes it different from term insurance. Permanent insurance is often referred to as cash-value insurance. Permanent life policies can build cash value over time, in addition to providing a death benefit to beneficiaries. 

Cash values accumulate on a tax deferred basis. Very similar to assets in most retirement and tuition savings plans. Most can be used in the future for your purposes. You can borrow from the cash value for a down payment on a new home, to pay for education or to supplement retirement income. Keep in mind, when you borrow money from a permanent life policy, you are using the cash value as collateral & the rates tend to be low. Unlike loans from most banks, the loan isn’t dependent on credit. You have to repay any loan with interest. If you decide not to pay the loan back, your beneficiaries will receive a reduced death benefit and cash value.

If you decide you don’t want to pay premiums, you can use the cash value to continue your insurance protection for a specified time. You can also choose to provide a lesser amount of death benefit protection covering you. If you stop paying premiums and decide to surrender your policy, the guaranteed policy values go to you. Keep in mind, if you surrender your policy in the beginning years, there could be little to no cash value.

Face Amount;

The face amount of a permanent life policy is different from the cash value of a permanent life policy. Face amount is described as the money that will be paid at the time of death. It also pays out when the policy matures, which is typically around age 100. Cash value is the amount available when you surrender your policy before it matures or at the time of your death. The cash value could be affected by the insurance company’s financial results or experience. This can be influenced by things like mortality rates, expenses, or investment earnings.

What is a permanent life insurance policy?

Permanent insurance comes in a wide variety of life insurance products. All of which carry a cash-value feature. We went ahead and listed the most common ones below.

Whole life insurance or ordinary life insurance; What is permanent whole life insurance? Probably the most common type of permanent life policy. There is a death benefit to go along with a savings account. With this policy, you’re agreeing to pay an amount in premiums regularly, for a specific death benefit. The savings portion grows based on dividends the company pays out to you.

Universal life insurance or adjustable life insurance; This policy offers more flexibility than other policies like whole life insurance. It’s possible you can increase the death benefit, but only if you pass a medical exam. There’s a savings vehicle called a cash value account. It generally earns a money at market rate. Once there is money that has accumulated in your account, you’ll have the option of altering your premium payments. That is, if there is enough money in your account to cover the expenses. This is useful if your economic situation suddenly changed. Keep in mind, if you stop or reduce your premiums and the savings accumulation is exhausted, the policy may lapse & your insurance coverage will cease. 

Check with your agent before deciding not to make premium payments for extended periods because you might not have enough cash value to pay the monthly charges to prevent a policy lapse.

Variable-universal life insurance; This policy has features of variable and universal life policies. As an example, you could have the investment risks and rewards characteristic of variable life insurance, in addition to the ability to change your premiums and death benefit that is a characteristic of a universal life policy.

Variable life insurance; Is the combination of death protection with a savings account that you can invest in stocks, bonds & money market mutual funds. Value of the policy could grow faster, but this also comes with more risk. If your investments do poorly, the cash value and death benefit could decrease. Although, some policies guarantee that your death benefit will not fall below a minimum amount.

In conclusion; You might be asking yourself, what is better term (read our article on term insurance here) or permanent life insurance? And the answer really has to do with your individual situation. If you only need coverage temporarily term may be best and if you’re looking for something to hold onto for life, then permanent insurance is the way to go. If you want to see what you qualify for is a very casual easy going way, give us a call. Our agents are really nice and incredibly knowledgeable about life insurance.