A
permanent life policy provides lifelong insurance protection. The
policy pays a death benefit if you die tomorrow or if you live to be
a hundred. There is also a savings element that will grow on a
tax-deferred basis and may become substantial over time. Because of
the savings element, premiums are generally higher for permanent
than for term insurance. However, the premium in a permanent policy
remains the same, while term can go up substantially every time you
renew it.
There are a number of different types of permanent insurance
policies, such as whole (ordinary) life, universal life,
non-participating whole life, and Term to 100. In a permanent policy, the cash
value is different from its face value amount. The face amount is
the money that will be paid at death. Cash value is the amount of
money available to you. There are a number of ways that you can use
this cash savings. For instance, you can take a loan against it or
you can surrender the policy before you die to collect the
accumulated savings.
There are unique features to a permanent policy such as:
You can lock in
premiums when you purchase the policy. By purchasing a permanent
policy, the premium will not increase as you age or if your
health status changes.
The policy will
accumulate cash savings.
Depending on the policy, you may be able to withdraw some of the
money. You also may have these options:
Use the
cash value to pay premiums. If unexpected expenses occur,
you can stop or reduce your premiums. The cash value in the
policy can be used toward the premium payment to continue
your current insurance protection – providing there is
enough money accumulated.
Borrow from
the insurance company using the cash value in your life
insurance as collateral. Like all loans, you will ultimately
need to repay the insurer with interest. Otherwise, the
policy may lapse or your beneficiaries will receive a
reduced death benefit. However, unlike loans from most
financial institutions, the loan is not dependent on credit
checks or other restrictions.
