What is Permanent Life Insurance? Unlike Term Life Insurance, Permanent Life Insurance remains in force for the full life of the insured as long as the premium payments are made in accordance with the policy provisions. Typically, Permanent Life Insurance has a cash value.
Two Types of Permanent Life Insurance are Whole Life and Universal Life
Whole Life Insurance
Whole Life Insurance provides coverage over the insured’s lifetime, not just a portion of the insured’s life. Since most Whole Life Insurance companies charge premiums based on the assumption that everyone would be dead by age 121, the company pays the policy face amount to those who attain age 121.
Premiums for Whole Life Insurance will stay level throughout the policy. Since premiums are based on age, the younger a person is when the policy is purchased, the lower the premium will be throughout the life of the policy.
The death benefit also remains the same. There are forms of limited pay policies where premiums are paid for a certain number of years or to a certain age. If you choose one of these, the premiums will be higher than if you paid premiums until age 121.
A very important aspect of Whole Life Insurance policies is that they have a cash value. This means that a Whole Life Insurance policy has a savings aspect for the insured. A portion of each premium payment goes into the cash value.
The policy owner can access this money in a number of ways. Whole Life Insurance policies have to contain a schedule that shows the owner the minimum value he can receive if he decides to surrender the policy. Loans can be taken out on the policy up to the cash value, however interest is charged for this loan, which can be repaid at any time.
If the policy is surrendered, or the insured dies, the loan is deducted from the cash value or face amount. Cash value can be considered an asset and used as collateral in a loan.
Universal Life Insurance
Universal Life Insurance is a flexible premium adjustable life insurance policy that has an initial premium and flexible premiums afterwards. The policy holder can select the future amount and the frequency of his premium payments, within limits, and can stop and start premium payments. It is important to be aware of the account value in these policies to be sure there is always enough there to keep the policy in force.
As premium payments are made on a Universal Life Insurance policy, they accumulate within the policy at a fixed rate of interest and create an account value. This interest rate is determined by the company and changes periodically, and cannot go below the guaranteed minimum interest rate stated in the policy.
Each month, expenses are deducted from the account value. The different between the premiums paid in, plus the interest credited to these funds, less the policy expenses (cost for insurance and fees), equals the account value.
Universal Life Insurance policies can be written in such a way that specified premiums will guarantee a specific death benefit very much like whole life but at a lower premium. The difference is that in this case, the Universal Life Insurance policy will not build as much cash value as the Whole Life Insurance policy. If you are not using your life insurance as a savings vehicle, then a large cash value may not be important to you.
Imagine Insurance is the Region’s Permanent Life Insurance Expert
It is important to reevaluate your life insurance every two to three years to ensure it is still accomplishing what you need it to do. Our situations change as we age and our insurance needs may change as well.
There is really only one final question, “if you died today, would your plan be ready?” Allison Harris can help you ensure you have the proper plan in place to ensure that your family is taken care of. Contact us today to schedule free no-obligation consultation about your Permanent Life Insurance needs.