Permanent Life Insurance
Unlike Term life insurance, Permanent life insurance policies provide protection for the full life of the insured, provided they pay the premium to keep the policy in force in accordance with the policy provisions (subject to the claims-paying ability of the insurer).
With Permanent life insurance policies, premium payments are greater than necessary to provide the life insurance benefit in the early years of the policy, so that a reserve can be accumulated to make up the shortfall in premiums necessary to provide the insurance in the later years. Should the policy owner discontinue the policy, this reserve, known as the "cash value", is returned to the policy owner, subject to applicable surrender or early withdrawal charges.
Why do I need a Life Insurance Policy
There are many reasons for buying a life insurance policy, top among them is "peace of mind". Life insurance coverage should provide you with peace of mind, knowing that those you care about will be financially protected after you die. Among the other reasons are:
Life insurance can replace the loss of income that would occur in the event of your death.
Life insurance cash payment can be used to pay any debts that you may leave behind.
Life insurance can be used to pay off mortgages, car loans, and credit card debts.
Life insurance proceeds can also be used to pay for final expenses and estate taxes.
Finally, life insurance can create an estate for your heirs.
If you do your homework, you may be surprised at the variety of life insurance plans that exist, their creative uses, and how they can benefit you and your family when you pass away and while you are still alive.
Permanent Life Insurance
Permanent life insurance provides coverage for you until you die. Such policies are permanent and can last for life if designed and monitored properly. Permanent life insurance policies cost more than term life policies, but they feature a cash value savings component that accumulates over time as you pay your premiums.
Permanent life insurance offers more comprehensive coverage, and has a variety of uses beyond providing a death benefit to your named beneficiaries. Permanent life insurance can also:
Supply a retirement income
Serve as a cash reserve while you’re alive
Offer long term care features
Provide an opportunity to tap into the death benefit while you are still living to pay medical expenses if you become terminally ill.
One of the great benefits of Permanent life insurance is that they accumulate a cash value. This cash value grows over time by earning interest and may be available for the policy owner to cashed out prior to death or used to pay premiums in later years.
The following are types of Permanent Life Insurance policies
Whole Life insurance
Universal Life insurance
Variable universal Life insurance
Indexed Universal Life insurance.
Types of Permanent Life Insurance
Whole life insurance - guaranteed premiums
Whole life insurance is a permanent life insurance that provides coverage for your entire lifetime as long as the fixed, scheduled premiums payments are maintained. The death benefit and minimum cash value are predetermined and guaranteed.
Whole life insurance includes a savings component which a portion of your premium will pay into that build up cash value. The savings component has a fixed interest rate that builds cash value over time, this is partly the reason whole life policies typically cost more than term life policies with similar coverage.
Participating Whole Life Insurance - allows you to participate in the profits of the insurance company, in the form of bonuses and dividends every year, if the reserves grow faster then they predicted.
Non-Participating Whole Life Insurance - you do not participate in the profits of the insurance company but your initial premiums start out lower.
Non-Participating Whole life insurance guarantees how much your premium will be, what your death benefit will be, and how much your cash values will be overtime.
Universal Life Insurance - openness and flexibility
Universal life insurance is another form of permanent life insurance with a death benefit and a cash value account. Universal life is sometimes called adjustable life insurance because it offers more flexibility than a whole life insurance policy. For example, universal life policies allow you to pay premiums at any time, reduce or increase the amount of the death benefit as your needs change and even adjust or skip your monthly premium (within certain limits), as long as policy expenses and the cost of insurance coverage are met.
Note: Reducing or increasing premiums will impact the growth of the cash value component and possibly the death benefit. Also be aware that if you want to raise the amount of coverage, you'll need to go through the insurability process again, which will include a new medical exam, and your premiums will increase.
There are various types of Universal life insurance, however the main difference between the various Universal Life policies has to do with how the reserves are handled.
Guaranteed Universal Life - are not designed to build cash value so the premiums are a bit lower.
Universal Life - puts the reserve into an interest bearing investment and the cash value will grow at a declared interest rate, which may vary over time.
Indexed Universal Life - puts the reserve into a type of investment that is exposed to stock market indexes, such as the S&P 500 but with guardrails where the upside is capped and the downside exposure is also limited. Variable Universal Life - allows you to pick from various mutual funds to invest in with a wide range of risk to return profiles.As with whole life, a universal life policy has a savings component that grows and allows for borrowing. However, a universal life policy works differently than a whole life policy in two key ways:
The interest rate for a universal life policy's cash value is not fixed. You'll have a guaranteed minimum interest rate, but in general, the rate at which your cash value builds can change over time based on market conditions.
Your universal life policy's cash value can eventually grow and result in a zero-cost policy, in which all premiums are paid from the built-up value.
Variable Life Insurance - you make the investment decisions
Variable life insurance is another form of permanent life insurance that allows you to choose how your cash value account are invested and also gives you more control over the variables of the policy. Like the ability to adjust the premiums you pay in a given year or adjust death benefit up or down based on the performance of investments in the professionally managed subaccounts you choose.
Variable life insurance however is a riskier type of permanent life insurance because the death benefit and cash value fluctuate depending on the performance of investments in what are known as subaccounts, which can range from a fixed interest subaccount to a highly volatile international growth subaccount.
Variable Universal Life Insurance - the ultimate in flexibility
Variable universal life combines all of the options and flexibility of universal life with the investment choices of a variable policy. With this policy, you make most of the policy decisions. You decide how often and how much your premium payments will be (subject to limits), as long as policy expenses and the cost of insurance coverage are met. With most variable universal life policies, the amount of insurance coverage or death benefit can be changed, and the cash value goes up or down based on the performance of investments in the subaccounts that you choose.
Use this chart to quickly compare the five key types of life insurance policies:
| Life insurance type | Coverage length | Best for ages | Builds cash value? | Medical exam required? | Death benefit amount |
|---|---|---|---|---|---|
| Term | 10, 15, 20, 30 years | 18 – 65 | No | Varies | $100,000+ |
| Whole | Your lifetime | 18 – 65 | Yes | Yes* | $50,000+ |
| Universal | Your lifetime | 18 – 65 | Yes | Yes | $50,000+ |
| Variable | Your lifetime | 18 – 65 | Yes | Yes | $50,000+ |
| Final Expense | Your lifetime | 50 – 85 | Yes | No | $2,500 – $35,000 |
All life insurance policies have one thing in common – they’re designed to pay money to the “named beneficiaries” upon death of the insured. Always review your policy or contact your agent to identify the limitations and exclusions of your coverage.
What is an accidental death & dismemberment policy? An accidental death & dismemberment policy is a form of life insurance that's more limited and covers deaths only when they’re accidental. It generally doesn’t cover deaths caused by illness and disease.
Things you should know About Permanent Life Insurance
Most permanent policies, including whole, ordinary, universal, adjustable and variable life, have a feature known as "cash value" or "cash surrender value." This feature, which is not found in most term insurance policies, provides you with some options:
You can cancel or "surrender" the policy — in total or in part — and receive the cash surrender value in a lump sum. However, if you surrender your policy in the early years, there may be little or no cash surrender value.
If you need to stop paying premiums, you can often use the cash surrender value to continue your current insurance protection for a specific period of time or to provide a lesser amount of protection to cover you for as long as you live if there is sufficient cash value.
Usually, you may borrow from the policy, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or the beneficiaries will receive a reduced benefit at the death of the insured.
Cash values of many life insurance policies may be affected by your carrier's future experience, including mortality rates, expenses and investment earnings.
Keep in mind that with all types of permanent policies, the cash value of a policy is different from the policy face amount. Cash surrender value is the amount of available cash when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death or at policy maturity.
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How much life insurance can you afford?
The cost of your life insurance will depend on a number of factors: on your age, your health, the type of policy you’re applying for, and how the policy is designed. Typically, permanent insurance, with its flexibility and multitude of uses, is much more expensive than term insurance. As you get older and/or your health diminishes, insurance carriers identify you as being a higher risk, and therefore charge you higher premiums. It’s best to lock in coverage while you’re young and in good health. How much coverage you need can be calculated based on your income, your projected future income, your net worth, and your age. In the case of key-person business insurance, the potential loss of profitability that would result from your passing would be a key component in the calculation. Insurance carriers consider each of these factors when determining the amount of coverage for which you qualify. //////////Move to another page///////////////Life Insurance Discounts
There are some factors that can impact upon the cost of life insurance that are under your control. They are:
Smoking – Non-smokers pay less for life insurance than smokers do because they live shorter lives. If you smoke, consider quitting.
Health – While some health conditions cannot be avoided, others can. A regular program of exercise, diet, and proper nutrition can keep you in shape and keep your life insurance costs down.
Drinking – Statistics show that drinkers are more likely to die than non-drinkers are, especially in accidents.
Dangerous Activities – Your insurance company will want to know if you are a skydiver, or about other hazardous activities you may be involved in.
