Learn How Permanent Life Insurance Works
What is Permanent Life Insurance?
Permanent life insurance is a term used for life insurance policies that do not expire. Typically, permanent life insurance combines a death benefit and a savings feature inside the policy.
The two primary types of permanent life plans are whole life insurance and universal life.
Whole life insurance offers coverage for the entire lifetime of the insured person, and its savings can grow at a guaranteed rate.
Universal life insurance also offers a savings element in addition to a death benefit, but offers different types of premium structures and earns based on market performance, not a guaranteed rate of return.
Permanent life insurance is a type of life insurance that is typically designed to provide life insurance coverage until a person dies. This is different than other life insurance options such as term insurance, which only provides life insurance for a specified number of years.
Permanent life premiums are usually much higher than term life premiums. Some permanent life coverage may cost up to 5-10 times than the same amount of term life coverage.
Permanent life insurance often includes a savings component. It works by using a portion of the premiums paid to make investments, and the return on those investments are returned to the policyholder’s account.
Over time, the cash value of these investments can grow. This can make the insurance policy worth a lot more than just the original face amount of life insurance protection.
Different permanent insurance policies have different options for what a policyholder can do with the accumulated savings. Some plans allow the policyholder to withdraw the savings to use for a child's education. Some plans may allow the savings to be borrowed against.
Permanent insurance is life insurance that provides coverage guaranteed to last for your entire lifetime, as long as the premiums are paid.
How Does Permanent Life Insurance Work?
Unlike term life, which promises payment of a specified death benefit amount for a specific period of time, permanent insurance lasts the entire lifetime of the insured person, unless non-payment of premiums causes the policy to lapse, and coverage to be terminated due to non-payment of premiums.
Permanent life premiums go both towards maintaining the policy's death benefit and allowing the policy to build cash value over time, against which the policy owner may borrow funds or, withdraw cash to help meet needs such as paying for a child's college education, or covering medical expenses.
There is often a waiting period after the purchase of a permanent life policy, allowing for sufficient cash value to accumulate, before you may be eligible to borrow against the cash value in your policy.
If the amount of the total unpaid interest on a loan, plus the outstanding loan balance, exceeds the amount of your policy's cash value, the insurance policy and all coverage will terminate.
Make sure you keep your payments up-to-date. You may be able to set-up direct deposit payments of your premiums from your checking or savings account at your bank.
Will My Premiums Ever Increase?
No. With whole life insurance, you pay the same premium each year, either on a monthly or annual basis, usually.
Will My Coverage Amount Ever Decrease?
No. With whole life insurance, the amount of life insurance provided by your policy will remain the same each year, unless you choose to increase or decrease the amount of coverage.
Permanent Life vs Whole Life
Whole life insurance offers a guaranteed cash value, meaning it has a minimum growth rate.
Other types of permanent life insurance can lose value over time depending on the wider market. However, whole life insurance is a conservative investment option and means you can likely find better returns with different investment vehicles.
What is the Difference Between Permanent Life and Whole Life Policies?
Whole life insurance is a type of permanent life insurance that provides a death benefit and accumulates a cash value.
The primary difference between whole life and term insurance is the duration of the policy.
A whole life policy ends when you die, while a term life policy lasts for a pre-determined period of time. You may outlive the duration of your term insurance plan.
Types of Permanent Life Insurance Policies
Is Permanent Life Insurance the Same as Whole Life Insurance?
Permanent life coverage, which includes whole life and universal life, is designed for lifelong financial protection, as long as the policy remains in force.
What is Whole Life vs. Universal Life insurance?
The difference is that universal life is one type of whole life policy, with the definition of whole life insurance simply being a policy which does not expire.
Universal life insurance is one of the more expensive types of whole life policies, due in large part to the way the accrued cash value can be manipulated by the owner of the life insurance policy.
Cost of Premium for Permanent vs. Term Policies
Initially, term life premiums are generally much lower than permanent life plans. However, term life premiums typically increase upon each renewal while permanent life premiums remain the same.
The Pros and Cons of Whole Life Coverage Include the Following:
Why is Term Life Better Than Permanent Life Insurance?
Premiums are significantly higher than those charged for term life policies, not only to compensate for the higher mortality risk in your later years, but because whole life policies accumulate cash value over time.
Permanent Life Insurance Quotes
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