Permanent Life Insurance

If you purchase life insurance, your loved ones will receive financial protection in the event of your death. Permanent life insurance is a type of life insurance that provides coverage for the policyholder’s entire life and comes with a cash value component.

Comparing term life insurance and permanent life insurance is like comparing apples and oranges. Term life insurance is less expensive and less complicated, but there are some situations where permanent life insurance makes more sense.

Permanent life insurance policies generally provide lifelong coverage and the opportunity to build cash value, which accumulates on a tax-deferred basis.

The policy’s cash value can be accessed while the policyholder is alive. Permanent life insurance costs more than term life insurance because it has a longer coverage length, higher cash value, and higher policy charges.

Permanent life insurance policies are those that last for the policyholder’s entire life and include whole life insurance and universal life insurance.

If you chose to cancel or end the policy at any time, you will receive the cash value that is in the account. However, there may be a surrender charge that you will have to pay.

Importance of Permanent Life Insurance

The type of life insurance policy you need depends on your reasons for needing life insurance.

Permanent life insurance is best for those who want to accrue cash value. Whole life insurance is better than term life insurance for people who want to make sure that their loved ones receive a death benefit when they die. A few typical goals that lead people to permanent life insurance include:

• Need for lifelong life insurance protection because of people financially dependent on you.
• Want to fund a trust for heirs.
• Desire to leave a financial legacy to heirs.
• Desire to capitalize on the cash value or investment component of a permanent policy.
• Want to make sure your loved ones get money to pay final expenses and funeral costs.

Cash Value Accumulation in A Permanent Life Policy

Cash value grows on a tax-deferred basis. However, growth rates will differ depending on the type of permanent policy- in the same way that money deposited in a bank savings account will have a different rate of growth than money invested in a brokerage account.

A whole life insurance policy from a mutual insurer will grow at a guaranteed interest rate, with the potential for additional cash value growth through dividends.

This is because mutual insurance companies are owned by their whole life policyholders, who may be eligible for annual dividends based on policy cash value and company performance.

Although dividends are not guaranteed, Guardian has provided them to customers annually since 1868. In addition to increasing your cash value, these payments have the potential to make a significant contribution to your wealth.

You won’t receive any dividends on your universal life insurance policy, even if it’s with a mutual insurer. However, because the interest rate in a standard universal life policy (or UL) is variable, your cash value can grow faster or slower than it would with whole life.

And, for those willing to accept a greater degree of risk, there are two variations on UL that offer the potential for even greater growth because the investment component is based on market returns:

A variable universal life insurance policy (VUL) gives you the option to grow your cash value by investing in a variety of stock and bond markets, known as “subaccounts.”

However, a standard universal or whole life policy guarantees growth, while growth in a variable life insurance policy is not. As the policyholder, you are responsible for any losses suffered- similar to how you would be with a broker account.

An Indexed UL policy lets the cash value growth be tied to the performance of a broad securities index, such as the S&P 500.

There is a minimum and maximum rate of return, so you will not get all the benefits of the reference index, but you will not lose everything either.

Permanent Insurance Cost

Types of Permanent Life Insurance

There are different types of life insurance that have different rates of how the cash value builds, as well as how much policyholder’s have in terms of flexibility.

1. Whole Life Insurance

A whole life insurance policy has a set premium price that does not increase, a guaranteed rate of return on the cash value, and a set death benefit. The value of the cash component of your policy will increase over time based on the interest rate. You can take out money from the cash value or get a loan using the cash value as collateral.

There are several reasons consumers purchase whole life insurance over other types of permanent policies. The policy is predictable because it has guarantees.

A whole life policy has the advantage of usually allowing the policyholder to earn dividends every year. Dividends are a way for policyholders to receive a portion of the money that a mutual insurance company has earned.

Dividends can be used in different ways such as taking the money as cash, using it to pay premiums, or reinvesting it into the cash value.

The death benefit of a life insurance policy is paid to your beneficiaries tax-free. Whole life insurance also has some downsides:

• Compared to term life insurance and even other types of permanent policies, whole life insurance tends to be the most expensive.
• The interest rate you earn on your cash value is likely less than what you could gain if you invested your money another way.
• Whole life insurance policies don’t offer the same type of flexibility you can get with a universal life insurance policy. With a whole life insurance policy, you can’t alter your premium payments or death benefit.

2. Universal Life Insurance

Universal life insurance policies offer more flexibility than whole life insurance policies. You may be able to change how much you pay for your premium and how much your death benefit is within certain limits.

The cash value gains within a universal life insurance policy will vary depending on the type of UL policy you buy:

Guaranteed universal life insurance

An insurance policy that promises a minimum rate of return on cash value is called a “guaranteed universal life insurance policy.”

Indexed universal life insurance

An indexed universal life insurance policy’s cash value is based on the performance of an index, such as the S&P 500.

Variable universal life insurance

A variable universal life insurance policy’s cash value is linked to investment subaccounts that the policyholder can choose and manage. There is more potential for profit if your investments do well, but also more potential for loss.

This means that the policyholder may have to pay more than they would with other types of life insurance policies. Additionally, with a universal life insurance policy, the policyholder may have to pay more than they would with other types of life insurance policies, as there are no fixed costs within the policy.

Your premium is used to cover the costs of the cash value account, the policy charges and fees, and the insurance that protects you.

But many policy costs increase as you age. If you use your cash value, you might have to pay more premiums to cover the charges and keep your policy active.

3. Variable Life Insurance

You can buy a variable life insurance policy that comes with a death benefit and a cash value that you can invest in stocks, bonds, or money market funds. The amount of money you make or lose from your investments will depend on the type of investment you choose.

This type of insurance is for people who don’t mind taking on more financial risk. You could see a greater return with a whole life policy than you would with a life policy, but you would also be taking on more risk.

If your cash value grows, you could use the extra money to pay some of your future premiums for the policy.

What this means is that a variable life insurance policy’s fees and expenses can eat into the cash value that your premium payments go towards. Variable life insurance policies come with a lot of fees, including mortality and expense fees, administration fees, and investment management fees.

You should make sure to understand which parts of a policy are guaranteed and which are not if you’re thinking about getting variable life insurance.

4. Burial And Final Expense Insurance

Burial insurance is a small whole life insurance policy with a death benefit that is typically between $5,000 and $25,000.

Policies of this sort are typically sold without the need for a medical exam and you cannot be rejected. This type of insurance is purchased by consumers who have health issues or are on a tight budget in order to cover their burial or funeral costs.

Burial or final expense insurance helps your beneficiaries pay for funeral costs and other expenses after you die. The cost is high in relation to the amount of coverage you receive.

Burial insurance is designed to help your family pay for funeral-related expenses, and not for other things like college tuition, mortgage payments, or daily living expenses.

5. Survivorship Life Insurance

Survivorship life insurance, also called “joint life insurance” or “second-to-die life insurance,” is usually a whole life insurance policy.

Whereas other permanent life insurance policies only insure one person, this policy insures two people, typically a married couple. The death benefit will be paid to the beneficiaries when both spouses have died.

Survivorship life insurance is a type of insurance that is often used to fund a trust. This type of insurance can be used to pay for estate taxes and other expenses related to settling an estate.

A survivorship life insurance policy is usually cheaper than two individual policies for the same people. This is especially true if the person to be insured has medical problems.

A survivorship policy is a life insurance policy for two people, usually spouses, that pays a death benefit after the second person dies. Survivorship policies are easier to qualify for than a policy for one individual. Insurers are less concerned about health issues if one applicant is less insurable.