Life insurance offers peace of mind that your family will be cared for after you die. Permanent life insurance guarantees that they’ll be taken care of if the unthinkable happens.
There are many reasons people buy life insurance. They purchase coverage to cover final expenses, such as funeral and burial. They buy it to replace a wage earner’s income. They get coverage to provide money for a child’s education.
Imagine you were to die tomorrow. Could your family afford a funeral? Would your spouse be able to pay the mortgage? How much do you owe on credit cards? What would it mean for your child’s future education?
Permanent life insurance is there to help protect your loved ones when you die. Ultimately, it’s up to the beneficiaries how to spend the death benefit. If you want to make sure the money is spent in a specific way, such as your child’s education, make sure to include that in your will.
On this page, we’ll dive deeper into permanent life insurance and when it’s the right choice.
- Permanent life vs. term life
- Types of permanent life insurance
- Cash value
- Life insurance riders
- How to convert from term life to permanent life plan
- How to choose the right amount of coverage
- How much does permanent life cost?
- How to shop for permanent life insurance
Permanent life vs. term life
There are two overarching types of health insurance: permanent life and term life.
Term life is the more common type of policy. However, in recent years, more people have been buying permanent life insurance policies than term life.
One major difference between the two types of policies is that permanent is for life and term is for a specific number of years.
You can buy a term life policy for 10, 20, 25 or 30 years. Term life is usually cheaper and may pay out more. That’s because a term life is considered a lower risk to the insurance company.
As long you pay your premium, the insurer must pay out your permanent life insurance death benefit. On the other hand, there’s no guarantee that an insurer will have to pay out on a term life policy. There’s a good change you’ll outlive your term life policy.
Here’s how the two types of insurance compare:
Which one makes sense for you depends on your situation. Find out more about the differences.
Now, let’s take a look the multiple permanent life insurance options.
Types of permanent life insurance
Permanent life insurance is a wise decision if you’re looking for a policy that will definitely be there when you die. A term life policy can end while you’re still alive. That leaves little comfort to your loved ones.
Here’s when it makes sense to buy a permanent life policy:
- You want to make sure you don’t outlive your policy.
- You want a policy that builds cash value.
- You want to be assured that your mortgage and children’s education are covered.
- You don’t mind paying a little more to make sure that your insurer pays the death benefit.
There are multiple types of permanent life insurance. The differences include how much you pay and the policy’s cash value.
Here are four types of permanent life insurance policies:
- Whole life insurance is a predictable policy. It provides a guaranteed benefit, a guaranteed earnings rate on your cash value, and a consistent premium. You can also earn dividends based on the company’s performance. Whole life is the most basic kind of permanent life insurance.
- Universal life insurance is a flexible option that lets you vary your premium payments. After the first premium, you can usually make payments at any time. So, you pay more if you have extra money. You can skip it or pay less if you can’t afford to make a payment. Cash value is often the same as whole life insurance. One issue with universal life is your policy could lapse if you don’t make enough payments or the company doesn’t perform as expected. Newer types of universal life policies offer guarantees that this will not happen. Make sure that you explore this option. Universal life can be one of the cheapest forms of permanent life insurance.
- Variable life insurance allows you to invest your policy premiums. If the investments perform poorly, the death benefit and cash value will decrease. On the other hand, if the investments do well, the death benefit and cash value can significantly exceed those of a whole life policy. Variable life is one of the riskiest forms of permanent insurance, although its rewards can be great.
- Variable universal life insurance is a hybrid of variable and universal life insurance. It allows you to vary your payments, invest your policy premiums, and vary your coverage amount. Variable universal life insurance is the most flexible type of permanent life insurance. It can be either risky or predictable depending on how you use it.
Which type of permanent life insurance is best for you often depends on what kind of flexibility and risk you want. A whole life policy is excellent for someone who wants a life insurance plan that will gain value but won’t take much effort. If you want a more proactive life insurance experience, one of the other three options could be right for you.
One perk of permanent life insurance is that it can double as a savings account. Cash value lets you tap into the death benefit while you’re still alive.
The insurance company takes some of your premium and puts it into cash value. Cash value grows during the length of the policy. You’re then able to borrow from it.
One way to take advantage of cash value is to tap into it during retirement years if you have an unexpected one-time bill. For instance, let’s say you need work done on your house, but you don’t have any other way to pay for it.
Cash value is a nice perk, but don’t treat it as a retirement account. Here’s why:
- You can make more money through a 401(k) or IRA.
- Any money you take from your policy comes out of your death benefit.
- Tapping into cash value often comes with a penalty.
Use caution when deciding whether to tap into your policy’s cash value……….Read More>>