Could permanent life insurance be the right life insurance for you?
There are a few types of permanent* life insurance including whole life, universal life and variable universal life. Let's look at some common reasons to choose a permanent life insurance policy.
- Permanent life insurance earns cash value
All types of life insurance policies provide a death benefit to the beneficiaries; most of which are tax-free. However, permanent life insurance policies earn cash value. That's in addition to the death benefit protection. The cash value can be borrowed from the policy as a policy loan. That gives a liquidity characteristic to a permanent policy. However, it should be noted that loans will reduce both the cash value and death benefit by the amount borrowed.
- Permanent life insurance provides lifelong coverage
As long as the required premium is paid, a permanent policy only terminates when the insured dies or if the owner surrenders the policy. Some permanent policies mature at a stipulated age, commonly 100 or 121. If the insured is alive at 100, for example, premiums are no longer required but the death benefit will still be distributed when the insured dies. Some policies, however, simply disburse the cash value or pay out the death benefit if the insured lives to maturity.
- Whole life insurance premiums never change
With whole life insurance, one type of permanent life insurance, the premium is guaranteed to never change. The declared premium when the policy is issued remains the same, regardless of the insured's age. A policy originally issued for $50,000 with a $500 annual premium, provides a $50,000 death benefit when the insured dies. It doesn't matter if the insured is 40 or 100; the death benefit doesn't change. Neither does the premium. The $500 premium stays the same as long as the policy is in-force.
While permanent life insurance may be more expensive compared to term life insurance, it also provides financial protection when the insured becomes deceased and it can gain a cash value that could be used during their lifetime.
If you're wondering how this applies to you, obtain a life insurance quote. If you're just starting out with a tight budget, you may be drawn toward inexpensive term life insurance policy. If your budget is flexible and you would like access to a life insurance policy's cash value, a permanent policy might be the better option. There's also the option of two policies: A term life insurance policy that protects loved ones with a higher death benefit at a lower cost, and a smaller permanent life insurance policy that could accrue cash value and provide lifelong coverage.
In our article, Financial Advice for New Moms, we discuss why whole life insurance for children can be a good idea and a great value.
Now that you understand the important features of a permanent life insurance policy, continue to discuss your options with a financial professional to determine the best life insurance policy for your unique situation.
* As long as required premium payments are timely made.