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Why You Should Buy Permanent Life Insurance
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Article 7 of 14 in How to Find the Best Type of Life Insurance
If you are thinking about buying permanent life insurance, you will need to know what you are purchasing. There are different varieties of permanent life insurance, and the details can be complex. While the cost of permanent life insurance is typically higher than term, the benefits of permanent life insurance can make the plans an option to consider.
TIP: Because permanent life insurance can be difficult to understand, it is important that you ask an experienced agent any questions that you may have. Life insurance agents are available to help, and can get you the insurance coverage that you need.
Types of Permanent Insurance
- Whole Life: A whole life insurance policy is a traditional type of permanent plan that lasts your entire life. Although the premiums are higher than term, they are consistent throughout the policy, regardless of changes in health and age. A whole life insurance policy will accrue cash value as you make your premium payments. The cash value grows tax deferred the longer you keep the policies. The accrued cash value can be borrowed against or withdrawn in times of need. If you ever surrender your policy, you usually will receive the cash value. If the person dies, the death benefit is usually the face amount of the policy plus the cash value.
- Universal life insurance: A variation of whole life in which permanent life where insurance premiums buy a death benefit and build a savings account. The cash values portion earn an interest rate that is set periodically by the insurance company and is generally guaranteed not to drop below a certain level. This added flexibility can be advantageous. Because it has a cash component you can stop making premium payments (or make reduced payments) as long as the cash value supports the premium of the insurance portion. In addition, you may also be able to increase or decrease the death benefit over time. You can usually borrow against the policy in the form of a loan.
- Variable life insurance: A type of whole life insurance policy that also has an investment portfolio attached. The cash value is invested in your choice of stock, bond, or money market funding options. Cash values and death benefits vary based on the performance of the portfolio. Although death benefits usually have a floor, there is no guarantee on cash values. While this may be an answer to the lower returns offered by universal life insurance policies, fees for these policies may be higher than for universal life and you are taking the risk that your investment returns could be low. If this happens, it could eat into your death benefit. On the other hand, capital gains and other investment earnings accrue tax deferred as long as the funds remain invested in the insurance contract. Therefore, if your investments do well, you could have tremendous gains as well as have a huge increase in the death benefit!
TIP: Permanent plans, particularly Universal and Variable life insurance, are complicated, more risky, and involve financial investment. Consult an experienced insurance agent to be sure the benefits of these plans fit your needs.
Why Buy Permanent Insurance
Permanent life insurance is a life insurance policy that will last the duration of your life with the same premium payments throughout. However, because term life insurance policies are cheaper and allow for more flexible and profitable investing, permanent life insurance has fallen out of favor. While term life insurance is affordable, flexible, and common, including permanent life in your life insurance budget can have benefits:
- A secure premium payment: Life insurance premiums for term policies will change each time you need to renew your term. As you get older your term life premium payments can increase significantly, which will add a level of unpredictability to your budget. Permanent life insurance premiums, on the other hand, are going to be the same throughout the life of the policy. While the premiums can be higher at first, changes in your age, health, and other life circumstances could easily make term insurance premiums higher than permanent with each renewal. A permanent life insurance policy will be a steady and reliable way to insure your life and manage your future costs for insurance.
- A policy loan: As you build value in your permanent life insurance policy with regular premium payments, you are also building a cash reserve from which you can withdraw funds should you need a short-term cash infusion. You may deduct from your permanent life insurance policy in the form of a policy loan if your financial circumstances require. You will need to repay the loan, but, you will not have to go through any application process to access the money. Although this option should be considered last resort, and should not drive your decision to purchase permanent life insurance, taking out a policy loan is an added benefit.
- Variety of Uses: If you own a permanent plan, you can use it to build your wealth through savings and investments. Additionally, the use of permanent plans as a means to transfer estate assets is very popular. The cost of a permanent plan is higher, but the policy will be a financial tool to boost your portfolio.
The benefits of permanent life insurance may not suggest that it become the sole source of life insurance, however, it is possible to make permanent life a part of your plan. You can build your life insurance portfolio with a small percentage of permanent life insurance to gain some of the benefits of secure premiums and available policy loans while committing most of your budget to a more affordable term life insurance plan. When considering life insurance, consult your life insurance agent to determine whether or not including a permanent life policy in your portfolios is a sensible purchase.
Your decision to buy permanent insurance should be discussed with a reputable insurance agent that is skilled in life insurance coverage. Have your agent conduct an insurance needs analysis review to determine what type of life insurance is best for your situation, your age and your family. Compare permanent life insurance to term and determine which type is right for you. Once you have settled on what type of plan to purchase, being shopping and comparing life insurance quotes. To get started with a life insurance quote from a reputable agent in your area, click here to visit the Free Advice quote center.
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