Permanent life insurance offers lifelong protection, and you can accumulate cash value on a tax-deferred basis. This cash account can be used for a variety of purposes, from helping you out of a tight financial spot, to providing funds to take advantage of an opportunity, to supplementing your retirement income. The downside? Initial premiums are considerably higher than what you would pay for a term policy with the same face amount. Unlike term insurance, a permanent insurance policy will remain in force for as long as you continue to pay your premiums. There are many types of permanent life insurance; Universal Life, Indexed Universal Life, Final expense & Whole Life.
Is Permanent Life Insurance an Asset?
It depends on an individual’s needs and goals. Some people prefer to invest in term life insurance and invest the difference they would have paid into a permanent life insurance policy in other ways. Others like the fact that permanent life insurance is designed to be an asset that grows in value. You can use whole life or universal life insurance as a long term investment vehicle that provides continuous, stable growth along with tax advantages and a death benefit. A permanent life insurance policy provides liquidity, as you can borrow against it or withdraw funds.
Why Is Permanent Life Insurance Important?
Permanent life insurance is important because it allows you to set money aside for your golden years, and can provide for those who will follow in your footsteps. Many people choose lower cost term life insurance, promising themselves they will save and invest the money they would otherwise have spent buying a whole life or universal life insurance policy. The potential downside, is that you may not actively invest money or actively manage those investments. And even if you do set money aside and invest it, you’re not guaranteed a profit due to market volatility. Permanent insurance builds up a cash value over time and continues to achieve steady growth over the life span of the policy. You can also borrow the funds or take a loan out against the cash accumulation portion, although this can reduce the amount of death benefits payable from the policy.
How Does Permanent Life Insurance Work?
The way permanent life insurance works is determined by the premium you pay. The premium is allocated by the life insurance company in three ways:
- A portion of the premium is used for cost of the life insurance or the death benefits.
- A portion of the premium goes towards the administrative cost for managing your policy.
- The final portion of the premium goes towards the savings or Cash value accumulation portion of your policy. The premium you pay can remain the same and is guaranteed for the life of the insurance policy, or can be more flexible. The cash value increases because of the regular payment of your premium and also because of interest or investment earnings.
Will I need to pay premiums for the rest of my life to keep the whole life policy in force?
For traditional whole life insurance, the amount and duration of premium payments are the same for as long as the insured is alive, but some whole life policies allow you to pay premiums in a single installment, or for a shorter period such as 20 years or until age 65.
What will happen to the cash value of my whole life insurance policy when I die?
The life insurance company will absorb the cash value, and your beneficiary will be paid the policy’s death benefit. In addition to just death benefit proceeds, the combination of term and permanent life insurance can help in providing accumulation of cash that is tax deferred and that can also be used in order to pay for emergencies or other types of unexpected costs that may come up during the policy holder’s life.
What is a living benefits rider?
Most people purchase life insurance to provide a legacy of financial security to their loved ones at the time of their death. Doesn’t it make sense for the benefits to extend
and be available for you if you need them while you’re still living? Living Benefits – life insurance allows you to accelerate your policy’s benefits to get much-needed money in your hands if you are to suffer a terminal, chronic, or critical illness – such as heart attack, stroke, or cancer diagnosis – or in case of a critical injury. It’s a
game-changing feature that is revolutionizing the face of the life insurance industry.