Permanent life insurance, better known as just “life insurance”, is a wholesome type of insurance where the cash value is guaranteed to be paid at the end of a term, and that policy accumulates a cash value as time goes on. In other words, this is the opposite of term life insurance where insurance is only purchased for a designated span of time, and benefits are only received if the insured dies within that span of time.
This type of life-based contract is generally divided into two categories: protection and investment. Protection policies are created to provide a cash sum in the event that the insured dies. This is better known as “term insurance”. On the other hand, investment policies are primarily meant to catalyze capital growth rather than solely protecting the insured with a one-time sum.
Varieties of Permanent Life Insurance
Whole Life Coverage
Whole life insurance is a death benefit (cash sums after passing) for a level premium. For younger people, the premiums are higher because the insurance rises as the insured ages, and so as the people mature, the cumulative value of the premiums rises.
Although the primary point is the death benefit, most whole life coverage includes a cash reserve that can be accessed at any time through a policy loan, which can be retrieved at any time before the passing of the insured. If any of the loans are not paid back before the passing, the cash value is subtracted from the accumulated value of the premiums.
The main advantage of whole life coverage is its death benefit and its consistently increasing value, and the dividends paid in this investment. However, the rate of return is slowed and dividends are not always guaranteed, because these dividends are only shelled out as refunds of “premium over-payments” and therefore do not function like stock dividends.
Universal life coverage is a combination of permanent insurance with a higher flexibility in making premium payments. As a form of permanent life insurance, it also has an increasing cash-value, but unlike the previously mentioned whole life coverage, the premiums and death benefits are flexible.
A flexible death benefit means that the insured can increase or decrease the death benefit, or choose between two options: A and B. Option A is when the death benefit remains primarily constant with lower premiums, whereas Option B pays higher premiums, but as the cash value invested over time rises, so do the death benefits.
Limited pay is a type of insurance where premiums are only paid for a certain period of time, usually ten to twenty years, with no premiums afterwards. In addition, the benefits are paid usually at age 65, 75, 85, or 100. Another option is a policy without a payment at a specified age, but the insured has the credit of a guaranteed death benefit and no later premiums.
Endowment policies are a type of coverage whose value is equal to a benefit at a certain age—the “endowment age”, rather than a set death amount. However, they require higher premiums than whole or universal coverage because premiums are paid over shorter periods and endowment ages come earlier. Endowments are paid regardless of the condition or status of the policy owner’s life.