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Permanent Life Insurance Policies

If you’re thinking of purchasing life insurance, it’s time to get informed. There are two different kinds of life insurance: permanent life insurance and term life insurance. Although the majority of people purchase term life insurance, in some cases permanent life insurance may be the right policy for you. Here are five things you should know about permanent life insurance so you can make an informed decision about your policy.

1. Typically, permanent life insurance offers more coverage than necessary for the average person. People buy life insurance so that when they die and are obviously no longer able to financially support their families, the life insurance will do it for them. Permanent life insurance will cover you for the entirety of your life as opposed to term life insurance, which only covers you for a specified period of time. If, later on in life, your kids are all supporting themselves and you have no major financial obligations to others, then there’s no point in continuing to pay for coverage that you don’t really need.

2. Permanent life insurance, unlike term life insurance, offers an investment component in addition to the actual coverage. Over the years, savings build within the policy. You have the option of using this cash value or borrowing against it. The cash value of the policy is not taxable until you withdraw it. Permanent life insurance policies may be perfect for high earners who are looking into tax-deferred savings.

3. There are three kinds of permanent life insurance. Whole life policies have a fixed premium, which means its premiums never go up, and guaranteed minimum growth. At the other end is universal coverage, which lets you raise or drop your premiums along with the amount of cash that accrues. The third type of permanent life insurance is variable, which lets you decide how you want that cash to be invested.

4. Getting out of a permanent life insurance policy early can be pricey. If you wait long enough, when you get rid of your policy, you’ll receive a nice cash value that will pay you back for all the premiums you paid. It may take ten years or more to build up that cash value. In addition, if you bow out of your permanent life insurance policy early you may be subject to surrender charges. If you cash out your policy, you will be required to pay taxes on the earning portion; the only way to avoid taxes would be to use the money on another insurance product.

5. Permanent life insurance policies are usually more expensive than term life insurance policies. The reason for this is because a term life insurance policy does not automatically result in a payout. If a person lets their term life insurance policy lapse because they no longer need it, the insurance company will have received all those premiums over the years without doing anything for it. With permanent life insurance though, an insurance company knows that they are going to have to make a payout. Thus, they charge higher premiums in order to cover all those guaranteed payouts.

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