Tag Archives: life insurance

Permanent Life Insurance

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

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

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.

Variable Universal Life Insurance: The Cash in Your Life

Variable universal life insurance (or VUL) is a form of life insurance that holds a cash value that is to be spent towards several different accounts—distinct from other types of insurance because of the access to a “death benefit” and the option of investment. VUL is primarily known for its “variety” in allowing the user to invest in separate accounts with different values, such as different stock and bond markets, as well as its “universality” for being flexible to all users and allowing different payment schedules, as opposed to most insurance policies that have a strict payment policy. In addition, it is a permanent life insurance, which is where the death benefit comes in: the user’s pension is still paid as long as there is enough cash value to pay all other costs.

As implied above, variable universal life insurance is a complex policy, with many possibilities. Firstly, the number of accounts available and the type of choices to invest in vary in the different VUL policies. Payment schedules are also subject to flexibility of the user and the offering company. The separate accounts with different investments are kept separate from the overall life insuring policy, and are similar to “mutual funds”—an investment program dealing with a variety of professional holdings. A majority of VUL policies label the insured as the manager of their investments rather than the company, and so there is both a larger risk and/or potential return.


There are multiple of advantages in engaging with variable universal life insurance:

  • Greater market growth: the user’s value is invested in multiple accounts that are all vulnerable to market growth or decline.
  • With VUL, the accounts are flexible enough to be adjusted to fit the trend of growth
  • Those with VUL have the advantage of First In, First Out withdrawal
  • Tax advantages: VUL’s returns, such as in death benefits or policy loans, are income tax free. Similarly, it is tax deferrable, making it highly attractive to those in the highest tax brackets
  • Future planning: the cash value that comes from a VUL is often put towards an education or a retirement fund


In addition however, there are also larger risks that come along with more intensive advantages:

  • By engaging in investment with your insurance policy, the responsibility of the investment is on the user, rather than the insurance company
  • Although the insurance policy is flexible to be adjusted, there will usually be a cost of change
  • Administrative hassle, as VUL involves a lot of understanding and planning
  • High costs: the cash needed in the first place to use VUL successfully is much higher than in other insurance options