Permanent/Whole Life Insurance
Permanent life insurance is a type of life insurance that stays in effect permanently. There is no policy period, and the policy ends only if you cancel the policy or die.
Some people may have life insurance policies offered through their employers, but oftentimes these policies are insufficient to cover the financial losses a death may bring to a family. Permanent Life Insurance is a financial investment policy that can provide additional financial protection and a financial asset benefit not otherwise found in term life insurance policies.
Permanent Life Insurance Versus Term Life Insurance
A term life insurance policy is good for a specified period of time, or a term. The purchaser can choose the duration of the effective policy. If something should happen to the insured person outside of the designated time period of the policy, then the policy would not provide any coverage or death benefit.
Permanent Life Insurance is a policy purchased for a seemingly indefinite time period. It is a life-long policy that stays in effect as long as you choose, or until the policy payout is needed. Unlike term life insurance, however, Permanent Life Insurance policies also have a cash value and are therefore a financial asset.
Understanding Your Coverage Options
Permanent Life Insurance can come in three different forms:
- Whole Life Insurance : Whole life insurance policies provide Permanent Life Insurance benefits, plus a cash value. A policyholder earns dividends on the policy’s cash value, which are usually paid out annually. The policy’s cash value is based on the amount of insurance in force and it provides a share of the insurance company’s profit with its policyholders.
- Universal Life Insurance: Universal life insurance policies also provide a cash value with the Permanent Life Insurance benefits. The cash value of universal life insurance accumulates over time as you make premium payments. A portion of the premium payments is invested in interest-yielding accounts.
- Variable Life Insurance: Variable life insurance provides Permanent Life Insurance and an option to invest your policy’s cash value wherever you choose. For instance, you can invest the cash value in stocks, bonds, or mutual funds. This provides autonomy to choose the investment option of the life insurance’s value, but it also comes with an increased risk. If the selected investment options underperform, any net losses may negatively affect the policy’s available death benefit.
Why Permanent Life Insurance Is Necessary
Permanent Life Insurance comes with advantages as well as disadvantages. It is important to consider your life insurance needs when selecting the right Permanent Life Insurance policy.
While many people assume the life insurance policy provided by their employer is sufficient, the reality is most of these policies pay a death benefit equal to one or two years’ salary. For many families, this benefit is not sufficient for long-term needs.
Term life insurance may be another option, but keep in mind you will likely have to renew a medical exam to purchase a new policy when the term expires. Any changes to your medical exam may negatively impact the premium of your insurance policy. Permanent Life Insurance does not require new medical exams during the life of your policy. Term life insurance, while less expensive, does not add financial value to your portfolio. Permanent life insurance does have a financial benefit.
Mortality is a difficult topic, but if you purchase Permanent Life Insurance while you are young, the premiums are more affordable, and they provide the option for financial growth for many years.
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